Jaitley’s New Real Estate Pipe Dream: Where Rents Equal EMIs

India-Real-Estate-Market

Nostalgia is a funny thing.  It makes you remember the good things you had and the good things you lost along the way (with due apologies to Bob Marley!).

The finance minister Arun Jaitley recently said: “(The) housing market in India, it had picked up. During Mr Vajpayee’s government, bank rates had come down to such an advantageous level that it was easier to buy an apartment than rent it out. That sort of situation had existed where the EMI has been reasonable. I think that’s the direction in which we have to slowly push our economy.” Jaitley said this at The Economist India Summit 2016, earlier this month, in response to a query on how the government plans to improve the stressed housing market.

What did Jaitley really mean here? First and foremost, he was remembering the good old days of the Vajpayee government (between 1998 and 2004). During those days the rent one had to pay while renting a house, was very close to the EMI one would have had to pay by taking on a home loan and buying it instead.

The question is how did this happen? This is something that Jaitley did not tell us. And one can’t blame him for it, given that there is only so much that one can say in response to a query. The real estate market had seen a boom in the 1990s. By the late 1990s the market had started to crash and kept unravelling over the next few years. Then the dotcom bubble burst in 2000-2001, the stock market fell after the Ketan Parekh scam came to light and the real estate prices crashed.

Hence, for the period that Vajpayee ruled the country, real estate prices were reasonable. In fact, as late as 2005 (a year after Vajpayee lost the 2004 Lok Sabha elections), property prices, even in Mumbai suburbs were fairly reasonable.

So, the EMI was low because the prices were low and it had nothing to do with lower interest rates.
Also, as I have often said in the past, lower interest rates aren’t going to make any difference to Indian real estate. Let’s understand this through an example. Let’s say the property you are looking to buy costs Rs 80 lakh. The bank gives a home loan of 80 per cent against the market price of the home. This amounts to Rs 64 lakh (80 per cent of Rs 80 lakh). The downpayment that will have to be arranged for is Rs 16 lakh. 
The home loan is for a period of 20 years and the interest to be paid on it amounts to 10 per cent per year. (The prevailing home loan rate is around 9.5 per cent. But we will work with 10 per cent just for the ease of calculation).

The EMI on this amounts to Rs 61,761. Let’s say the interest rate on home loans falls (the reasonable EMIs that Jaitley was talking about). Let’s say the interest rate falls by a fourth to 7.5 per cent per year. The EMI will fall to Rs 51,558. This will mean a saving of around Rs 10,203 per month.

Of course, the home becomes more affordable if such a thing were to happen and home loan interest rates were to fall by a fourth.

Now let’s take a look a scenario where home prices fall by a fourth or 25 per cent. The value of the property falls to Rs 60 lakh. The bank now gives a loan of Rs 48 lakh (80 per cent of Rs 60 lakh). This would automatically make more people eligible for the loan than there were when the home loan of Rs 64 lakh had to be taken. The downpayment required falls to Rs 12 lakh. This is Rs 4 lakh lower than the Rs 16 lakh downpayment required earlier, making things significantly easier.

What about the EMI? At 10 per cent per year and for a period of 20 years, it works out to Rs 46,321. This is more than Rs 15,000 per month lower than the earlier EMI of Rs 61,761. Even at 7.5 per cent, the difference in the EMIs comes to close to Rs 13,000 per month. Also, it requires a lower downpayment of Rs 4 lakh. Further, at a lower value of the home, more people would be eligible for the loan, as a lower EMI needs to be paid. A lower EMI can be paid with a lower income.

Also, in this transaction I haven’t assumed a black component, to keep things simple. But if prices fall, the black component also comes down. Also, I  feel a 25 per cent fall, as has been assumed here, will not make much of a difference, the prices need to fall more than that.

The point being if Indian real estate has to get back, prices need to come down. Let’s take the argument forward. Mr Jaitley talks about an era where rents and EMIs were equal. Now, what would it take for the rents to be equal to the EMI, in the time that we live in.

Let’s take the same example again. The value of the home is Rs 80 lakh. The rental yield (rent divided by the market price of the home) these days is around 2-3 per cent. Let’s take the upper end of 3 per cent. At 3 per cent on a home worth Rs 80 lakh, the rent works out to Rs 2,40,000 per year or Rs 20,000 per month.

If one were to buy this house, the bank would give a home loan of Rs 64 lakh (80 per cent of Rs 80 lakh). The EMI on this would work out to Rs 59,656. (Now we assume the real prevailing home loan interest of 9.5 per cent per year).

Over and above this, the buyer would also have to pay Rs 16 lakh as a downpayment. This means that this money will no longer be available for investment. If the buyer had this money in a fixed deposit which paid around 7 per cent per year, this would mean letting go of interest of Rs 1,12,000 per year or around Rs 9,333 per month. Hence, the total opportunity cost of buying a house worth Rs 80 lakh works out to Rs 69,989 per month.

Now compare this to the rent of Rs 20,000 per month. What this tells us very clearly is that renting is a no-brainer as of now, as far as numbers are concerned. Of course, there are other problems associated with renting which an owned home does not have.

If the rent has to be equal to the EMI plus the interest lost on the downpayment, then it has to go up by nearly 3.5 times its current levels. If it has to be equal to the EMI, then the rent has to go up around 3 times. The other option is that the property prices need to crash big time so that EMIs come down dramatically and are equal to the rent. Both options can be ruled out.

What will happen instead is that rents will rise gradually and property prices will fall gradually, in the years to come, but not dramatically (given that there are too many vested interests at work).

Only that is a given.

What this really tells us is that the finance minister Jaitley’s dream of a time where rents are close to EMIs, will remain a pipe dream at best, unless the real estate prices crash big time. Also, there is a fundamental disconnect here, the cost of owning something has to be greater than the cost of renting it.

The column originally appeared in Vivek Kaul’s Diary on September 13, 2016

The new Janata Party will be a challenge for Modi in Bihar

Vivek Kaul

The year was 1977. The emergency had just ended. The opposition leaders who had been imprisoned during the course of the emergency had just released. They were holding a massive rally at the Ram Lila maidan.
It was a rainy day in Delhi and well past 9.30pm by the time Atal Bihari Vajpayee rose to speak. He was the star speaker for the evening and the people who had turned up at the rally had stayed back just to hear him.
To the shouts of “
Indira Gandhi murdabad, Atal Bihari zindabad,” Vajpayee started his speech with a couplet:
Baad muddat ke mile hain deewane,
Kehne sunne ko bahut hain afsane,
Khuli hawa mein zara saans to le lein,
kab tak rahegi aazadi kaun jaane.”

(It has been an age since we whom they call mad have had the courage to meet,
There are tales to tell and tales to hear,
But first let us breathe deeply of the free air,
For we know not how long our freedom will last). (Source: Tavleen Singh’s
Durbar)

In the time to come all the major opposition parties came together and formed the Janata Party. This was the only way they could take on Indira Gandhi by ensuring that their votes did not split. The party won 295 seats in the Lok Sabha elections that followed and thus came to power. The largest number of 93 MPs were of the Jana Sangha (now the Bhartiya Janata Party) origin. Forty four MPs came from the Congress (O) party. Seventy one MPs came from Charan Singh’s Bhartiya Lok Dal. Jagjivan Ram’s Congress for Democracy brought in 28 MPs.
A large number of the Lok Sabha seats that the party won was limited to North India, given that the southern part of the country hadn’t really felt the ill-effects of the emergency implemented by Indira Gandhi as much as the north India had. Given this, Indira Gandhi’s Congress still managed to win 154 seats though they were wiped out in Uttar Pradesh with both Indira and her son Sanjay losing elections.
If one leaves out the Jana Sangha from this, the other parties were what we would call socialists, in the Indian sense of the term.
Nearly four decades later some of these socialists who were a part of the Janata Party have decided to come together again. This time to take on Narendra Modi. The parties which are merging together are Mulayam Singh Yadav’s Samajwadi Party, Lalu Prasad Yadav’s Rashtriya Janata Dal, Nitish Kumar’s Janata Dal(United) Indian National Lok Dal of Om Prakash Chauthala, Janata Dal(Secular) of HD Deve Gowda and Kamal Morarka’s Samajwadi Janata Party.
Mulayam Singh Yadav has been announced as the head of the party in Parliament, though its name and symbol haven’t been decided as yet. The Times of India reports that the party is likely to be called Samajwadi Janata Dal with the cycle as its symbol (which is the current symbol of the Samajwadi party).
So how strong a challenge is this new party going to be to Narendra Modi? Will it be as strong as the Janata Party was to Indira Gandhi? The first thing we need to understand is that the party has been formed when the next Lok Sabha election is still four years away.
After the merger, the party will have 15 members in the Lok Sabha, which is minuscule to the 295 members that the Janata Party had. In the Rajya Sabha the party will have 30 members. In that sense, the party will provide very little challenge to Narendra Modi.
Further, the support of all the parties which are coming together is heavily localized. Samajwadi Party is strong in Uttar Pradesh. The Indian National Lok Dal is strong in Haryana and Dev Gowda’s Janata Dal(Secular) is strong in parts of Karanatka. Hence, to that extent no consolidation of votes can be expected against Narendra Modi.
The only exception to this is Bihar. In Bihar, both Lalu’s Rashtriya Janata Dal(RJD) and Nitish’s Janata Dal (United)(JD(U)) are on a strong wicket. Data from the election commission shows that the combine of Bhartiya Janata Party (BJP) and Ram Vilas Paswan’s Lok Janshakti Party(LJP) got 35.8% of the votes polled during the Lok Sabha elections last year.
The RJD and the Congress Party which fought the elections together got 20.1% and 8.4% of the votes respectively. The Janata Dal(United) which fought the elections separately got 15.8% of the votes. Hence, the vote percentage of JD(U) + RJD matches that of the BJP + LJP. Further, RJD+JD(U)+Congress got more votes than BJP + LJP. Nevertheless, since RJD+ Congress and JD(U) were not in alliance, these votes did not translate into Lok Sabha seats.
Things changed in the by-elections to 10 assembly seats that happened in August 2014. In these elections the JD(U) came together with the RJD+Congress and took on BJP+LJP. The data from the election commission shows that the RJD+Congress+JD(U) got 45.6% of the total votes polled. The BJP+LJP got 37.9% of the votes polled. Given that, this time JD(U) was not fighting the elections separately, the votes polled translated into assembly seats as well, unlike the Lok Sabha polls. The RJD+ Congress+ JD(U) got six out of the ten assembly seats.
Hence, in Bihar, given the way the caste combinations work, the new Janata Party can be a potent force to take on Modi. The trouble is that Lalu and Nitish, despite the claims that they make in public these days, do not get along with each other.
Nitish became the Chief Minister of Bihar in 2005, more than three decades after he entered politics in the early 1970s. And for the first half of his political career, he propped up Lalu Prasad Yadav even though he knew that Lalu wasn’t fit to govern. Journalist Sankarshan Thakur puts this question to Nitish in his book Single Man: “Why did you promote Laloo Yadav so actively in your early years?” he asked.
And surprisingly, Nitish gave an honest answer. As Thakur writes “’But where was there ever even the question of promoting Laloo Yadav?’ he mumbled…’We always knew what quality of man he was, utterly unfit to govern, totally lacking vision or focus.”
So why then did Nitish decide to support him? “There wasn’t any other choice at that time,’ Nitish countered…’We came from a certain kind of politics. Backward communities had to be given prime space and Laloo belonged to the most powerful section of Backwards, politically and numerically.”
And this logic still continues to remain valid. The next assembly elections in Bihar are scheduled for later this year is in November 2015. And the chief minister’s post will be a bone of contention between Lalu and Nitish. It remains to be seen whether the new party will be able to survive this.
In other states the new party may be able to cause some damage to Modi only if it comes together with the Congress. To conclude, the biggest challenge for the party will be to survive till the next Lok Sabha elections in 2019.

(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek)

The article originally appeared on Firstpost on April 16, 2015 

What Vinod Rai's book proves: History will not be kind to Manmohan Singh

India's PM Singh speaks during India Economic Summit in New DelhiVivek Kaul


In January 2014, towards the end of his second term,
Manmohan Singh spoke to the media for the third time in a decade. On this occasion he said “I honestly believe that history will be kinder to me than the contemporary media.”
While speaking to the media Singh also said “I feel somewhat sad, because I was the one who insisted that spectrum allocation should be transparent, it should be fair, it should be equitable. I was the one who insisted that coal blocks should be allocated on the basis of auctions. These facts are forgotten.”
If that was the case then why did the allocation of 2G(second generation) telecom licenses and coal blocks end up in a mess? This Singh did not elaborate on during the course of his interaction with the media in January, earlier this year. Neither has he chosen to elaborate on these points since then.
Vinod Rai, the former Comptroller and Auditor General (CAG), analyses both these issues and the role Singh played in them, threadbare, in his new book
Not Just an Accountant—The Diary of the Nation’s Conscience Keeper. In this piece we shall look at the mess that the issuance of 2G telecom licenses ended up in and leave the discussion on what came to be called coalgate, for sometime later this week.
Rai in his book through a series of documented evidence shows how Singh was fully aware of what was going on, but still chose to not to do anything about it. Instead, he even went to the extent of distancing himself from the decisions made by the communications minister A Raja.
As Rai writes “You [Manmohan Singh] engaged in a routine and ‘distanced’ handling of the entire allocation process, in spite of the fact that the then communications minister A Raja, had indicated to you, in writing, the action he proposed to take. Insistence on the process being fair could have prevented the course of events during which canons of financial propriety were overlooked, unleashing what probably is the biggest scam in the history of Independent India.”
Before we get into the details of what probably led Rai to make such a strong statement, we need to take a brief look at how the Indian telecom sector evolved from the 1990s.
The telecom sector was opened up to the private players in a phased manner after the announcement of the National Telecom Policy (NTP) in 1994. Licenses were initially allotted to private companies in 1995, through the competitive bidding route. These licenses allowed private companies to launch mobile phone telephony in India.
The policy was revised in 1999 and existing mobile phone operators were allowed to migrate to a revenue sharing regime with the government. “The upfront payment was an entry fee, with the annual license fee to be paid separately. The entry fee was fixed on the basis of the highest bid received in the 2001 auction of licenses. It was Rs 1,651 crore for pan-India licenses,” writes Rai. The then prime minister Atal Bihari Vajpayee constituted a group of ministers on telecom in September 2003. The recommendations of this group were added to the National Telecom Policy of 1999. The existing system of issuing licenses were replaced by an automatic authorization regime.
A Raja took over as the communications minister in May 2007. He decided to continue with the first-come-first served(FCFS) policy for allocation of licenses to telecom companies. On September 25, 2007, a press release was issued and applications were invited for telecom licenses. The last date was set to October 1, 2007, a week later.
In total 575 applications for 22 service areas were received by the communications ministry. This led to the ministry of communications writing to the law ministry and sought its opinion on how to deal with the situation of so many applicants. The law ministry suggested that the issue be referred to the empowered group of ministers(eGOM). Raja did not like this suggestion and on November 1, 2007, wrote a letter to Manmohan Singh.
In this letter Raja complained that the suggestion of the law ministry “is totally out of context”. He then went on to coolly inform the prime minister that he had decided to advance the cut off date for licenses to September 25,2007, the date on which the press release was issued for the allocation of licenses, instead of October 1, 2007.
Raja further told Singh that “the procedure for processing the remaining applications will be decided at a later date, if any spectrum is left available after processing the applications received up to September 25, 2007.”
The rules of the game were changed after it had started. Singh responded immediately on the same day. In his letter, Singh seemed to be concerned over the fact that a large number of applications for new licenses had been received. Given the fact that the spectrum was limited, it would not be possible to give spectrum to all of them, even over the next few years, Singh wrote. He further pointed out that the National Telecom Policy of 1999 had specifically stated that the new licenses be issued subject to the availability of spectrum.
In this scenario, Singh suggested that the communications ministry consider the introduction of a transparent methodology of auction, wherever it was legally and technically feasible. This needed to be done in order to ensure that spectrum was used efficiently.
Also, the entry fee for these licenses was the same as in 2001, i.e. Rs 1,651 crore. Hence, Singh suggested that the entry fee be revised. This was a logical suggestion to make given that six years had passed since 2001 and if not anything at least inflation had to be taken into account.
Raja responded within hours of receiving this letter from Singh. He ruled out an auction stating that “the issue of auction of spectrum was considered by TRAI[the telecom regulator] and the telecom commission and was not recommended as the existing license holders..have got it without any spectrum charge.” Raja went on to add that the holding an auction would thus be “unfair, discriminatory, arbitrary and capricious”.
Meanwhile, Kamal Nath, wrote to Singh on November 3, 2007, and suggested that a group of ministers should be asked to comprehensively study all the issues facing the telecom sector. Raja responded to this on November 15, and said that the Indian telecom industry was doing very well and was adding seven million new customers every month. The shares of the telecom companies listed on the stock market were also doing very well. And given these reasons the suggestion of Kamal Nath of setting up a group of ministers was again “out of context,” as had been the case with the law ministry earlier.
Singh responded on November 21, by sending what former CAG Rai calls a “template response”. In this letter Singh acknowledged that he had received Raja’s recent letter on the recent developments in the telecom sector. Raja wrote to the prime minister again on December 26, 2007. Singh again responded with the same templated response on January 3,2008.
All that has been discussed till now raises a series of questions. As Rai writes “[Manmohan Singh] failed to direct his minister[i.e. A Raja] to follow his advice…Why under what compulsion, did the prime minister allow Raja to have his way, which permitted a finite national resource [i.e. the telecom spectrum] to be gifted at throwaway price to private companies—private companies that, going by the minister’s own admission, were ‘enjoying the best results […] which was also reflected in their increasing share prices?”
Also, why was the entry price fixed at Rs 1,651 crore, which was a price set way back in 2001. As mentioned earlier this price should have at least taken inflation into account. The telecom market had also expanded since 2001. The National Telecom Policy of 1999 had set a teledensity target of providing 15 telephone connections per 100 of population. The teledensity in 2001 had stood at 3.58. In September 2007, a teledensity of 18.22 had been reached. “Was this data not available with the government..to counter Raja’s consistent and constant refrain?” asks Rai.
Further, even if increasing teledensity was the main goal, given that the spectrum is finite, didn’t it call for a “balance between revenue generation and achieving social objectives?” In fact, the tenth plan document clearly mentions this, when it comes to spectrum allocation: “pricing needs to be based on relative demand and supply over space and time in a dynamic manner, [with] opportunity cost to reflect relative scarcity of the resource in a given situation.”
Also, why was the cut-off date for the last date to receive applications arbitrarily advanced from October 1, 2007 to September 25,2007? As Rai writes “Though Raja clearly indicated this to the prime minister in his letter of 2 November 2007, the PMO chose not to object. Why it chose not to, remains unclear.”
Interestingly, thirteen applicants seem to have known of this change in date, in advance. How else do you explain the fact that certain applicants appeared with demand drafts amounting to thousands of crore, which had been issued even before the press release inviting applications for telecom licenses was put out on September 25, 2007.
Then there is the question of first-come-first served. It essentially means those who applied for a license first, would be given a license first. But that wasn’t the case. “One would be surprised to learn that even this procedure, which was repeatedly reiterated to the prime minister by Raja, was given the go-by, and all applications submitted between March 26 and 25 September 2007 were considered together,” writes Rai.
Pulok Chatterjee, a bureaucrat known to be close to the Gandhi family, was an additional secretary in the prime minister’s office at that point of time. In a note that was presented to prime minister Singh on January 6, 2008, Chatterjee concluded that “ideally in a situation where the spectrum is scarce it should be auctioned”. But by that time the licenses had already been issued.
Joint secretary Vini Mahajan recorded that the prime minister wanted Chaterjee’s note to be only “informally shared within the Dept”. She further noted that the prime minister “does not want a formal communication and wants PMO to be at arm’s length.” As Rai asks “How can the office of the prime minister distance itself from such major decisions? Arm’s length from the action of his own government?”
Also, it needs to be noted here that Raja suggested that TRAI was against auction of telecom spectrum. This is untrue. In August 2007, the telecom regulator had clearly stated that: “In today’s dynamism and unprecedented growth of telecom sector, the entry fee determined in 2001 is also not the realistic price of obtaining a license. Perhaps it needs to be reassessed by a market mechanism.”
The companies which got these licenses cheap, cashed in on it almost immediately. “In case of Unitech, which had no previous experience in the telecom business, Telenor, a Norwegian company, agreed to acquire 67.25 per cent stake for Rs 6,120 crore. Tata Teleservices sold 27.31 per cent stake to NTT Docomo at a value of Rs 12,924 crore. Even Swan Telecom sold 44.73 per cent stake to Etisalat International at Rs 3,217 crore. Is that not clearly indicative of the value the market attached to the 2G spectrum license. Even a cursory back-of-the-envelope calculation will indicate that licenses which could have fetched between Rs 8,000 to Rs 9,000 crore were priced at Rs 1,658,” writes Rai.
On February 2, 2012, the Supreme Court cancelled all the licenses that had been issued by A Raja.
On a slightly different note, Rai also points out it was a ruling party MP (Rai does not give out his name in the book) who seems to have first suggested that losses that the government faced from giving out licenses cheaply, needed to be calculated.
As Rai puts it “He [i.e. the MP] went on to reiterate that it was obvious how much the government of India could have secured by transparent bidding and asserted that even a section officer in the government would be able to make this computation.”
In a recent interview Rai revealed that the name of the MP was KS Rao, who has since quit the Congress protesting against the bifurcation of Andhra Pradesh and joined the BJP.
Rai writes that this was one of the reasons why the CAG decided to compute a loss figure arising out of the 2G telecom licenses being issued cheaply. As he writes “Now if an MP, and of the ruling party, makes such a strong assertion, obviously the audit department has to take cognizance of that parameter for computation.”
The CAG used various methods to compute a loss figure and arrived at a four numbers ranging from Rs 57,666 crore to Rs 1,76,645 crore. All this could have been avoided only if Singh had chosen to respond differently and instead said to Raja that “I have received your letter…Please do not precipitate any action till we or the GoM[group of ministers] have discussed this.”
To conclude, on an earlier occasion I had written that if he wants history to treat him kindly,
Singh needs to write his autobiography and put forward his side of the story as well. Whether he does that or not, remains to be seen. But Vinod Rai’s thoroughly researched book makes me now believe that whatever Singh might do, history will not be kind to him, his hopes notwithstanding.
The article appeared originally on www.Firstpost.com on Sep 15, 2014

(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek)

Why Advani must sometimes wish that he was a Nehru-Gandhi

lk advani

Lal Krishna Advani in his dreams must sometimes wish that he should have belonged to the Nehru-Gandhi family. Irrespective of what happens to the political fortunes of the Congress, the Nehru-Gandhis remain at the top.
Even when the party is not under the control of a Nehru-Gandhi, the Congress politicians keep conspiring endlessly till they have managed to install a Nehru-Gandhi at the helm of affairs. This was clearly the case between 1991-1996, after Rajiv Gandhi was assassinated and his widow Sonia refused to take over. Nevertheless the Congress installed Sonia as the president of the party as soon as she was ready.
As Rasheed Kidwai writes in
Sonia – A Biography “Throughout the Narsimha Rao regime, 10 Janpath[where Sonia continues to stay] served as an alternative power centre or listening post against him.” In December 1997, Sonia Gandhi indicated that she wanted to play a more active role in Congress politics. It took the party less than three months to throw out Sitaram Kesri, the then President of the party and put Sonia in charge in his place.
Advani has not been anywhere as lucky as Sonia. In fact, he has constantly been sidelined in the Bhartiya Janata Party (BJP) over the last five years. And unlike Sonia, who continues to enjoy the spoils of the hard-work of her husband’s ancestors, Advani built the BJP right from scratch.
The final nail in the coffin for Advani was the decision by the newly appointed BJP president Amit Shah to drop him from the 12-member Parliamentary Board of the Party. Advani though has been included in the newly created
margadarshak mandal, where he is unlikely to have any decision-making powers.
In fact,
Advani had to recently go through the ignominy of his nameplate being removed from his room in Parliament (the nameplate was put back later). This after being denied the post of the Lok Sabha Speaker, which he wanted. All this must be too much to handle for a man who is BJP’s senior most active leader, and refuses to retire.
The BJP was formed on April 5-6, 1980, after it broke away from the Janata Party. The Janata Party had been formed a few years earlier in 1977, with the merger of Congress O, Bhartiya Lok Dal, the Socialist Party and the Jana Sangh (the BJP’s earlier avatar), with the idea of taking on Indira Gandhi and her Congress party in the 1977 Lok Sabha elections.
The Janata Party won 295 seats in the elections, with 93 MPs coming from the erstwhile Jana Sangh. But trouble soon broke out and different constituents of the party could not get along with each other. This experiment against the Congress ended in 1980, and the BJP was formed. Atal Bihari Vajpayee became the president of the BJP, and Advani was its general secretary.
Interestingly, the party chose “Gandhian socialism” as its credo. Kingshuk Nag writes in
The Saffron Tide—The Rise of the BJP that a “consensus emerged…on Gandhian socialism being the credo of the new party; in other words, it would fashion itself like the Janata Party.”
Advani explains this in his autobiography
My Country, My Life: “The stress from the beginning was not on harking back to our Jana Sangh past but on making a new beginning.” The new beginning happened primarily because both Vajpayee and Advani had been influenced a lot by Jaiprakash Narayan, who was the main architect behind the Janata Party.
Also, what did not help was the fact that Indira Gandhi in her second avatar as the Prime Minister had in a way hijacked the “Hindutva” agenda, which the Jan Sangha had stood for. “Indira Gandhi had become religious with vengeance after coming to power in 1980 and began visiting temples with fervour. In public imagination, the impression created was that of a Hindu lady seeking the benefaction of the Gods. The policies in her tenure were also interpreted as being pro Hindu,” writes Nag.
This newly discovered “Gandhian socialism” did not work for the BJP in the Lok Sabha elections that happened in December 1984, after the assassination of Indira Gandhi by her bodyguard. The party won just two seats in this election. A committee was formed to try and understand the reasons for the electoral debacle.
As Nag writes “The committee…found a lot of lacunae in the working of the BJP. The committee also commented on the lack of political training of workers on political, economic, idealogical and organizational matters.” Or as a BJP insider told Nag “Basically, the committee politely said the party was going nowhere.”
Vajpayee resigned in the aftermath of the debacle and Advani took over as the president of the party. With Advani at the helm, the relations with the Rashtriya Swayemsevak Sangh(RSS) also improved significantly. In the years to come, the BJP went back to Hindutva and gradually junked “Gandhian Socialism” as its main credo. In fact, in 1990, Advani launched a
rath yatra in which he wanted to travel in a motorized van from Somanth in Gujarat to Ayodhya in Uttar Pradesh.
But before he could enter Uttar Pradesh, Lalu Prasad Yadav got Advani arrested in Bihar. As Advani recounts in his autobiography “My 
yatra was scheduled to enter Deoria in Uttar Pradesh on 24 October. However, as I had anticipated, it was stopped at Samastipur in Bihar on 23 October and I was arrested by the Janata Dal government in the state then headed by Laloo Prasad Yadav (sic). I was taken to an inspection bungalow of the irrigation department at a place called Massanjore near Dumka on the Bihar-Bengal border [Dumka now comes under the state of Jharkhand].”
Even though Advani could not complete the
yatra it was a huge success and Advani was greeted by huge crowds wherever he went. “At some places, charged-up followers applied tilak to the Ram rath while at other places, those moved by the movement smeared dust from the path of the rath on their forehead,” writes Nag.
Advani went around building the party on the ideology of hardcore 
Hindutva, taking the number of seats that the party had in the Lok Sabha to 85 in 1989 and 120 in the 1991. This fast rise of the party was built on slogans like “saugandh Ram ki khaate hain mandir wohin (i.e. Ayodhya) banayenge” and “ye to kewal jhanki hai Kashi Mathura baaki hai”. As Advani went about his job, Vajpayee took a back-seat for a while.
Nevertheless, Advani soon realized that temple and Hindutva politics could only get the party to a certain level. He also realized that he was looked at as a Hindu hardliner and as long as he led the party, it would never be in a position to form the government. Hence, in November 1995, at the end of his presidential address at the BJP national council meet held in Mumbai, he announced that “We will fight the next elections under the leadership of A.B.Vajpayee and he will be our candiate for a prime minister…For many years, not only our party leaders but also the common people have been chanting the slogan, “
Agli baari, Atal Bihari”.”
This was a political master stroke. At the same time it needs to be said that not many people would have been able to make the decision that Advani did, if they had been in his position. It is never easy to build an organisation right from scratch and then hand it over to someone else, to lead it.
With Vajpayee at the helm, other poltical parties were ready to ally with the BJP. The BJP led National Democratic Alliance first came to power in 1998. They were in power till 2004, when they lost the Lok Sabha elections. After the 2004 Lok Sabha elections, Vajpayee gradually faded from the limelight.
In these years, the spin-doctors of Advani had managed to tone down his image as a Hindu hardliner. This can be very gauged from the fact that Nitish Kumar had no problem with being in alliance with an Advani led BJP, but he wasn’t ready to work with a Narendra Modi led BJP.
The NDA fought the 2009 Lok Sabha elections under the leadership of Advani and lost. And from then on, the stock of Advani has constantly fallen in the BJP. The decision to drop him from the Parliamentary Board of the party, as mentioned earlier, is probably the last nail in the coffin of his political career.
Interestingly, Narendra Modi was also handpicked by Advani to play a greater role in the BJP. As Nilanjan Mukhopadhyay writes in 
Narendra Modi – The Man. The Times “From the beginning it was evident that Modi was Advani’s personal choice and he was keen to strengthen the unit in Gujarat because the state was identified as a potential citadel in the future.”
Advani also mentored Modi during his early days in politics. “It was Advani who mentored Modi when he virtually handpicked him into his team of state apparatchiks after recommendations from a few trusted peers in the late 1980s. Advani also gave Modi early lessons in how to convert the mosque-temple dispute into one of national identity,” writes Mukhopadhyay.
But in the recent years while Advani’s stock within the BJP and the RSS has fallen dramatically, Modi’s stock has been on a bull run. The
shishya has become the guru. The trouble is that the guru does not want to retire, and is probably still itching for a one-last-fight.
But there is not much that he can do about it. Advani’s side-lining is an excellent lesson of what happens when one overstays one’s welcome in politics as well as life. There is a time to work. And there is time to retire and move on.
To conclude, Advani’s one remaining political ambition would have been to become the prime minister of India. But that somehow did not happen. As Salamn Rushdie aptly put in
Midnight’s Children “This is not what I had planned; but perhaps the story you finish is never the one you begin.”
The article originally appeared on www.firstpost.com on August 29, 2014

(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek)

Advani and Modi ties: From guru-shishya to frenemies

lk advaniVivek Kaul
If media reports are to be believed, Lal Krishna Advani, is looking for a safe seat to contest from, in the 2014 Lok Sabha elections. The Gandhinagar Lok Sabha seat in Guajarat from which Advani is currently a member of parliament (MP) is no longer deemed to be safe as it falls in the land of Narendra Modi.
As
Coomi Kapoor writes in The Indian ExpressBecause of the bad vibes between Narendra Modi and Advani on the leadership issue, the latter does not want to put himself at Modi’s mercy by standing again from the Gandhinagar seat.”
Advani it seems has been advised to contest from Lucknow. This would mean latching onto the legacy of Atal Bihari Vajpayee. The other reason here could be the fact that Samajwadi Party chieftain Mulayam Singh Yadav has had nice things to say about Advani in the recent past.
As
Iftikhar Gilani writes in the Daily News and Analysis “Advani’s advisors initially wanted him to contest the 2014 election from Lucknow, a seat once represented by former PM Atal Bihari Vajpayee. However, with the fast-changing loyalties within the BJP, Modi has laid a claim on both Gandhinagar and Lucknow constituencies to in an attempt to showcase his national acceptance.”
Hence with Modi eyeing to contest from Lucknow as well as Gandhinagar, Advani now plans to contest from a safe seat in Madhya Pradesh. “Advani has reportedly set his sights on the Bhopal constituency since Madhya Pradesh Chief Minister Shivraj Singh Chouhan is a friend who can be relied upon. An advance team has already gone to Bhopal to make an assessment of the constituency,” writes Kapoor in
The Indian Express. (Another DNA report suggests that Modi wants to contest from Lucknow whereas his trusted lieutenant Amit Shah wants to contest from Gandhinagar).
What is ironical here that it was Modi who first suggested to Advani to contest from Gandhinagar more than two decades back. Advani was looking for a safe Lok Sabha seat to contest from in the 1991 Lok Sabha elections. As Nilanjan Mukhopadhyay writes in
Narendra Modi – The Man. The Times “He (i.e. Advani)…relied on Modi to play a crucial role in “giving” him a new political home, Gandhinagar in Gujarat. Advani’s decision to move to Gujarat was because the Congress in 1991 sprang a surprise by nominating the popular film actor, the late Rajesh Khanna, to contest against Advani from New Delhi which had traditionally been a tricky seat owing to comparatively less number of voters (just 4.5 lakh) and a low turnout (in 1991 it was 47.86%). In any case, Advani contested from both New Delhi and Gandhinagar and this proved to be providential as the BJP strongman barely scraped through in the capital by less than 1600 votes.”
Advani has represented Gandhinagar in the Lok Sabha since then, except in the 1996 Lok Sabha elections which he did not contest because he was facing charges of money laundering in the Hawala scam.
A report in The Times of India in 2011 suggested something similar. “In 1991, it was Modi who suggested to Advani that he should contest for Lok Sabha from Gandhinagar…Gandhinagar was until then represented by Modi’s peerturned-foe Shankersinh Vaghela . It was a masterstroke as BJP cadres got charged up in the state and Vaghela was relegated to the fringes . The relationship grew with Advani frequently visiting Gujarat after becoming an MP from the state,” the report pointed out.
The relationship between Advani and Modi did not start in 1991, but a few years before that. Modi was the second pracharak from the Rashtriya Swayemsevak Sangh (RSS) to be deputed to its political affiliate the Bhartiya Janata Party (BJP). The first being K N Govindacharya. Those were the days when Modi went around Ahmedabad in an ash coloured Bajaj Chetak scooter.
Modi’s deputation to the BJP took place sometime in 1987-88. This was around the time when Lal Krishna Advani was rebuilding the BJP after the debacle of the 1984 Lok Sabha elections in which the party had won only two seats. Among other things Advani decided to revive the post of organising secretary in the state units of BJP. In the erstwhile Jana Sangh (BJP’s earlier avatar before it merged with other parties to form the Janata Party in 1977) the post was held by RSS pracharaks. Modi was made the organising secretary of the Gujarat unit of the party. “From the beginning it was evident that Modi was Advani’s personal choice and he was keen to strengthen the unit in Gujarat because the state was identified as a potential citadel in the future,” writes Mukhopadhyay.
narendra_modi
Modi would soon rise to national prominence when he would play a part in organising Advani’s famed rath yatra which yielded huge political dividends for the BJP. As Mukhopadhyay points out “Modi came into the national spotlight for the first time when he helped organise Advani’s Rath Yatra in September-October 1990…Modi coordinated the arrangements during the Gujarat leg and travelled up to Mumbai and it was a huge success in Gujarat – both in terms of seamless arrangements and public support.”
In the years to come the relationship between Modi and Advani went from strength to strength, with Modi emerging as the super Chief Minister in the BJP government in Gujarat in the mid 1990s. As
The Times of India report quoted above points out “It was with Advani’s blessings that Modi emerged as a ‘super CM’ even as he ran the government from the back seat.”
Advani’s fondness for Modi became very well known in the BJP circles. “Throughout the 1990s and even after Modi became chief minister, Advani’s special fondness for Modi has been well known by both party insiders and observers. In 2002, when Modi was under attack for the role of the state administration in Gujarat riots, it was due to Advani’s
protection that the BJP leadership gave him a fresh lease of life. Earlier Advani had played a crucial role in the making of Modi as chief minister replacing Keshubhai Patel in October 2001,” writes Mukhopadhyay.
The relationship started to sour after Advani on a visit to Pakistan in June 2005 had good things to say about Mohammed Ali Jinnah. As Advani wrote in the
Visitors’ Book at the Jinnah Mausoleum: “There are many people who leave an inerasable stamp on history…But there are very few who actually create history. Quaid-e-Azam Mohammed Ali Jinnah was one such rare individual.”
Advani obviously was trying to get rid of his tag of being the posterboy of Hindutva. But saying nice things about Jinnah went against the entire idea of
Akhand Bharat which the RSS believes in. Around this time, Modi started to distance himself from his mentor. Advani had to pay for this statement and had to quit as the BJP party president in late 2005.
And this created space for Modi for a bigger role. As Mukhopadhyay writes “The original poster boy of Hindutva ceased to be and yielded space to the much younger Modi as the mascot of the aggressive Hindu face. At times it appeared that the
guru-shishya relationship of yore had been replaced by intense rivalry,” writes Mukhopadhyay.
This rivalry has now come to the fore with Advani looking for a safe seat outside Gujarat to contest from. Modi is trying to inherit the political legacy of both Vajpayee and Advani by wanting to contest the next Lok Sabha elections from both Lucknow as well as Gandhinagar.
The trouble is Advani hasn’t given up as yet his aspirations of becoming the Prime Minister of India. Modi has his supporters within the BJP. As BJP President Rajnath Singh
recently told the Open magazine “Narendra Modi is the most popular BJP leader in the country.” But then so does Advani. In an interview to The Economic Times, Yashwant Sinha, a senior BJP leader said “Advaniji is the senior-most, most respected leader and if he is available to lead the party and government, then that should end all discussion. Everyone should fall in line and work together for the party under his leadership. But the call will have to be taken first by Advaniji himself, secondly by the party and finally by NDA (National Democratic Alliance) .” Cine actor Shatrughan Sinha also wants BJP to fight elections under the leadership of Advani.
A factor working in favour of Advani is that he is acceptable to BJP allies like Janata Dal (United). Narendra Modi clearly is not. As the
Open Magazine points out “JD-U leader Devesh Chandra Thakur was even more open on the question of Advani’s candidacy for the PM’s post. “The NDA contested under the leadership of LK Advani [in 2009]. I do not think there should be a problem for any NDA faction to go to polls under his leadership. Advani will definitely be more acceptable to most factions of the NDA,” he said after the party’s national executive meeting. “What further indication can Nitish Kumar give?” asks another JD-U leader considered close to the Bihar CM.”
L K Advani, the original posterboy of Hindutva is deemed secular enough to head the NDA. Narendra Modi is not. As Kingshuk Nag writes in
The NaMo Story: A Political LifeThe ghosts of Gujarat 2002 are likely to haunt Narendra Modi till his last days.”
Advani had to play second fiddle to Vajpayee in the 1990s after building the BJP from scratch. This happened because with Vajpayee at the helm BJP would have been able to attract more allies, which it eventually did. Nearly two decades later Advani might find himself in a similar situation where he(like Vajpayee was) is more acceptable to the potential allies than Narendra Modi is. It is safe to say that no one has served the BJP more than Advani. His contribution to building BJP as a national party is
even greater than that of Vajpayee.
Let me conclude this piece with an old bhojpuri saying: “
Chela Cheeni Ban Gella, Guru Gud Rah Gella (which loosely translated means the student has become sugar, whereas the teacher continues to be jaggery).” Whether this comes to be true in the context of Advani and Modi, we will find out over the course of the next one year.
The article originally appeared on www.firstpost.com on April 27,2013

(Vivek Kaul is a writer. He tweets @kaul_vivek)