The Halo Effect of Amit Shah


amit shah
When the Bhartiya Janata Party (BJP) won the Lok Sabha elections in May 2014, a lot of credit for its success went to Amit Shah. He was deemed to be a master strategist and a hard worker. A lot was written on how Shah worked round the clock to ensure a BJP victory. Explanations were offered on how Shah picked up winning candidates, engineered local alliances and so on.

The rise of Amit Shah in public consciousness is an excellent example of the halo effect. Author and strategist Michael Mauboussin defines the halo effect as “our proclivity to attach attributes to what has succeeded, solely because of the success.” The media went around looking for reasons behind the success of Amit Shah and found them. As Phil Rosenzweig writes in The Halo Effect…and the Eight Other Business Delusions that Deceive Managers “We want explanations. We want the world around us to make sense…We prefer explanations that are definitive and offer clear implications.”

This tendency to build a halo around those who are successful is not just limited to politics. It’s a very important part of success in business as well. As Jason Zweig writes in The Devil’s Financial Dictionary: “If the price of a company’s stock has gone up strongly, the people who run the company will seem almost superhuman. In early 2000, for instance, with Cisco Systems’ stock up more than 100,000 percent over the previous decade, Fortune magazine called its chief executive, John Chambers, “the world’s greatest CEO.””

If you are the kind who reads business newspapers and magazines regularly, you are unlikely to miss out on profiles of business leaders. These profiles typically look into the background of what makes these leaders so successful, at the time they are successful. These days the profiles of those who run ecommerce firms are very popular in the media. They get the kind of readership that nothing else does (at least in the business media). What none of these profiles seem to talk about is that these businesses are loss-making and are likely to continue to be loss making.

The point being that the media writes good things only up until the going is good. Getting back to Amit Shah, after the success of May 2014, the BJP lost elections first in Delhi, and then more importantly in Bihar. Both these defeats were hugely embarrassing for the party.

And not surprisingly, knives are now out for Shah. Some analysis suggest that he is a Gujarati and doesn’t have a feel of the entire country. This has been offered as one of the explanations for why the BJP lost Bihar. Then there were also some news reports that suggested that Shah will be replaced as the BJP president soon.

The same media that built a halo around Shah is now busy pulling him down. In fact, what is happening to Shah now, also happened to Chambers at Cisco.

After a 100,000 percent increase in price, the stock price of Cisco fell by 80% in a year. As Zweig writes: “A year later with the  stock price down almost 80%, Fortune described Chambers as having dangerously blind to the signs of the coming collapse. The same company run by the same man seemed utterly transformed as soon as its stock price fell.”

Why does this happen?  As Mauboussin told me in an interview a few years back: “The idea is that when things are going well, we attribute that success to skill—there’s a halo effect. Conversely, when things are going poorly we attribute it to poor skill…So the answer is that great success, the kind that lands you on the covers of business magazines [or other magazines], almost always includes a very large dose of luck. And we’re not very good at parsing the sources of success.”

Nevertheless, the media couldn’t have just written that luck played a large role in Shah and BJP’s success in 2014. That would have been boring.

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

The column was first published in the Bangalore Mirror on December 9, 2015

Why it is easier to acquire land in Gujarat & Punjab than Bihar, Kerala & Bengal

Land acquisition has been a tricky subject in the country of late. The issue has been discussed threadbare in the media over the last few years. But one point seems to have been missed out on. I came across this rather basic and very interesting point in Sanjoy Chakravorty’s book The Price of Land—Acquisition, Conflict, Consequence.

In this book published in 2013, Chakravorty uses data from the 2005-2006 agriculture census. I will use data from the 2010-2011 agricultural census in this column and make the same points that Chakravorty is making.

The basic point that Chakravorty makes is that it is easier to acquire land in states where the average landholding is larger in comparison to states where the average landholding is smaller. As Chakravorty points out: “In Kerala, where 96 per cent of all landholding are marginal, the average marginal holding size is 0.35 acres [the actual number is around 0.34 acres. The writer seems to have rounded it off to 0.35 acres]. In Bihar, where almost 90 per cent of all holdings are marginal, the average marginal holding size is 0.62 acres.”

How do things look if we were to use data from the 2010-2011 agricultural census? The above paragraph would read like this: “In Kerala, where 96 per cent of all landholding are marginal, the average marginal holding size is 0.33 acres. In Bihar, where almost 91 per cent of all holdings are marginal, the average marginal holding size is 0.61 acres.”

As we can see the numbers haven’t changed much between 2005-2006 and 2010-2011.
Chakravorty further points out: “In both these states [i.e. Bihar and Kerala] the marginal holdings make up little over half of all agricultural land area. In Tamil Nadu, Uttar Pradesh and West Bengal, over 75% of all landholdings are marginal. It may be very difficult to bring these lands to the market.”

In Bihar farmers with marginal landholders own 57% of all agricultural land. In Kerala, the number as of 2010-2011 stands at 58.6%. In Tamil Nadu, Uttar Pradesh and West Bengal, 90%, 79% and 82% of all landholdings are marginal.

What this means is that the moment a large amount of land needs to be acquired for an infrastructure project or setting up a factory or a mine, a large number of landholders need to be dealt with. In many cases, some arm of the government (state or central) wants to acquire land for private businesses. And this is not easy.

Further, many other states like Gujarat, Rajasthan and Punjab have larger average landholdings. As Chakravorty writes: “From the smallest landholders(marginal farmers in Kerala, averaging 0.35 acres per holding) to the largest (50 acres in several states, even larger in some), it is not difficult to see how a price such as Rs 10 lakh per acre can be perceived very differently by different landholders based on the size of their holdings. For example, an average large landowner in Gujarat would be paid more than Rs 4 crore for his land (because the average large landholding size in the state is over 41 acres), whereas the average marginal landowner in Kerala would be paid Rs 3.5 lakh.”

How do things look if we use 2010-2011 agriculture census data? The average large landowner in Gujarat owns around 52 acres. Hence, at Rs 10 lakh per acre he would be paid Rs 5.2 crore. In fact, even if we look at marginal landowner in Gujarat things are much better. The marginal landowner in Gujarat owns around 1.2 acres. At Rs 10 lakh per acre the payment is Rs 12 lakh. In Kerala, the average marginal landowner owns 0.33 acre as per the latest agriculture census, and this amounts to a payment of Rs 3.3 lakh. In Bihar with an average size of 0.61 acres, the payment would be Rs 6.1 lakh.

In fact, Punjab is another state where the average marginal landholding is significantly large. The average size in case of marginal landholding in Punjab is 1.5 acres. At Rs 10 lakh per acre, this would involve a payment of Rs 15 lakh. The average size of a landholding in Punjab is around 9.3 acres. And at Rs 10 lakh per acre, it would involve a payment of Rs 93 lakh.

Given this difference in average landholding size, it is easier to acquire land in parts of the country where average the landholding size is larger because that ultimately leads to higher payments. As Chakravorty writes: “Based on this information on land distribution alone, it is possible to conclude that land acquisition is likely to very difficult in some states; Kerala, Bihar, and West Bengal top this list. It is also likely to be significant challenge in Tamil Nadu and Uttar Pradesh, and to a lesser extent, in Andhra Pradesh and Assam.”

In fact, information is available even at a district and sub-district level. Given this, identifying parts of the country where land fragmentation is lower and hence, land acquisition should be easier. Nevertheless as Chakravorty puts it: “This is not hard to do because the information already exists. Having this information should make the task of identifying land for acquisition easier, but to the best of my knowledge, has never been done.”

This is not surprising given that there was very little resistance to forceful land acquisition carried out by the government up until very recently. But now that is no longer possible, hence, more out of the box solutions need to be looked at.

The column originally appeared on The Daily Reckoning on Dec 8, 2015

Why the Bihar poll matters for stock markets: A BJP win will allow stockbrokers to sell ‘ache din’ again


The assembly elections in the state of Bihar are scheduled to happen across five phases between October 12, 2015, and November 7, 2015. The constituents of the stock market are closely following the run up to these elections like they had followed the run up to the Lok Sabha elections last year.

While the stock market following the Lok Sabha elections is but natural, why is it following the run up to the assembly elections in Bihar? Bihar is the poorest state in India as measured by the per capita income. Data released by the Ministry of Statistics and Programme Implementation shows that for 2014-2015, the per capita income of the state was Rs 36,143. This was the lowest among the states and union-territories, which had declared their per capita income when the data was published in July earlier this year.

During 2013-2014, the per capita income of the state was at Rs 31,199, the lowest among all states and union-territories. The state of Uttar Pradesh came in second from the bottom at Rs 36,250. This when the per capita income of Bihar has grown at greater than 15% in each of the last three financial year’s.

Data from the India Brand Equity Foundation points out that the per capita income of the state is around 43% of the Indian per capita income. The gross domestic product (GDP) of the state is around 3.25% of the Indian GDP, even though the state has more than 8% of India’s population.

The installed power capacity of the state is 2759.8 MW, which is around 1% of the total capacity in India. Over and above this, given the many years of lawlessness and the lack of electricity that the state has faced, it barely has an industry.

Data from the ministry of finance shows that the state has 26 public private partnership projects. This is less than 2% of the 1409 projects all across India. The India Brand Equity Foundation points out that the “total FDI for Bihar and Jharkhand combined during the period from April 2000 to May 2015 stood at US$ 59 million.” On this my guess is that even this miniscule amount would have gone more to Jharkhand than Bihar.

The state barely contributes to the Indian GDP, has virtually no industry and almost no FDI is going into the state. In this scenario why is the stock market worried about Bihar? As Shankar Sharma, Vice Chairman and Managing Director of First Global recently told Business Standard: “Bihar election is important from the context of whether the Modi government still enjoys popular mandate or not.”

And how will that help the stock market? A win in Bihar for the Bhartiya Janata Party(BJP) led coalition will allow the stock brokers to sell the Narendra Modi “ache din aane waale hain” story all over again to foreign investors as well as Indian investors.

As Philip Tetlock and Dan Gardner write in Superforecasting—The Art and Science of Forecasting: “The one undeniable talent that talking heads have is their skill at telling a compelling story with conviction, and that is enough.”

Stock market investors love a good story and Narendra Modi in control is a compelling story that can ‘still’ be sold with some conviction by stock brokers. What works for it is the fact that it has already been sold once between September 2013 and May 2014, in the run up to the last Lok Sabha elections. The BSE Sensex ran up 33% between September 2013 and May 26, 2014, when Narendra Modi was sworn in as the prime minister of the country.

This was purely a sentiment based rally based around a compelling story that was well sold. The stock brokers are hoping to repeat this in the time to come. The trouble is that unlike the last Lok Sabha election this election remains too close to call. Hence, up until now, various opinion polls have swung both ways. Some have suggested that the BJP led alliance will win, whereas others have suggested that Lalu Prasad Yadav + Nitish Kumar + Congress (or the Grand Alliance) will win. Let’s see which way things swing.

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

The column originally appeared on Firstpost on Oct 6, 2015

Why Lalu Yadav had a change of heart towards Nitish Kumar


Lalu Prasad Yadav has gulped “poison” but is still alive. As he told reporters yesterday: “I want to assure the secular forces and the people of India that in this battle of Bihar, I am ready to gulp everything. I am ready to consume all types of poison. I am determined to crush the hood of this snake, this cobra of communalism.”

The p-word is essentially a metaphor for Lalu accepting that Nitish Kumar, the current chief minister of Bihar, be projected as the chief ministerial candidate in the assembly elections scheduled in the state later this year. The Rashtriya Janata Dal (RJD) leader had resisted Nitish being projected as the chief ministerial candidate until now.

But with Nitish declaring on June 7 that he no longer wanted an alliance with the RJD for the forthcoming polls, Lalu had no other option but to agree to Nitish being projected as the chief-ministerial candidate.

Mulayam Singh Yadav, the president-designate of the proposed new Janata Party, welcomed this decision of Lalu and said: “I am very happy about the unity of Lalu Prasad and Nitish Kumar. Kumar will be the chief ministerial candidate for Bihar. Laluji has proposed Nitish Kumar’s name for the chief ministership. Laluji said he will campaign.”

Lalu may want us to believe that he drank the poison to crush the cobra of communalism, but that is not really the truth. If Lalu had to continue to stay relevant in the years to come he needed to ally with Nitish. He had no other option.

The electoral numbers of the 2014 Lok Sabha polls give us the answer. Data from the election commission shows that the combine of Bhartiya Janata Party (BJP) and Ram Vilas Paswan’s Lok Janshakti Party (LJP) got 36.36 per cent (BJP = 29.86 per cent + LJP = 6.5 per cent) of the valid votes polled during the Lok Sabha elections last year.

The RJD and the Congress Party which fought the elections together got 20.46 per cent and 8.56 per cent of the valid votes respectively. Nitish’s Janata Dal(United)(JD(U)) which fought the elections separately got 16.04 per cent of the valid votes. Hence, the vote percentage of JD(U) + RJD at 36.5 per cent was slightly more than that of the BJP + LJP at 36.36 per cent. 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.

The RJD won only four seats in the state and its alliance partner the Congress party, won two seats. The JD(U) also won only two seats. The BJP on the other hand won 22 seats whereas its partner LJP won six seats.

As is obvious from the data, the LJP won six seats with 6.5 per cent of the votes polled, whereas the RJD won four seats with 20.46 per cent of the votes polled. This was simply because the LJP got its alliance right.

Obviously Lalu understands this electoral math well enough. And given this, he is ready to let Nitish be projected as the chief-ministerial candidate, his initial reluctance notwithstanding.

Interestingly, in the by-elections that happened for 10 assembly seats in August 2014, 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 per cent of the total votes polled. The BJP+LJP got 37.9 per cent of the votes polled.

Given that, 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, there is some evidence of the alliance working.

Lalu and Nitish have had an “edgy” relationship for the over four decades that they have known each other. Nitish became the chief minister of Bihar in 2005, after managing to dislodge Lalu, who had ruled directly as well as through proxy (through his wife Rabri) for a period of 15 years and brought the state to the point of an economic collapse.

Ironically, for the first half of his political career, Nitish propped up Lalu, even though he knew that Lalu wasn’t fit to govern. Journalist Sankarshan Thakur put this question to Nitish in his book Single Man: “Why did you promote Lalu 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.'” Given this, what Nitish thinks of Lalu is totally on record.

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.'”

It is now Lalu’s turn to return the favour to Nitish. Also, Lalu knows that with the alliance of three parties, his party will have as many seats in the Bihar assembly as Nitish’s JD(U) or probably even more. This will allow him to extract his pound of flesh on the pretext of allowing the alliance to survive. And that is what he is interested in. Hence, what Lalu has drank is an ‘elixir’ and not poison, as he would like us to believe.

The column originally appeared on DailyO on June 9,2015 

Modi needs Rahul

Rahul Gandhi is back. Back from his 57 day foreign sojourn, during which, if Congress leaders are to be believed, he was thinking about how to revive the Congress party.
And now that he is back he has come out all guns blazing against the Narendra Modi government. The Gandhi family scion has blamed the Modi government for being very close to the corporates and not being worried about the farmers. In a speech in the Lok Sabha yesterday he accused the government of being a “
suit, boot ki sarkar.”
For the time that Rahul was not in the country, several leaders of the Bhartiya Janata Party(BJP) took potshots at his absence. Amit Shah, the president of the BJP, had recently said at the two day National Conclave of the party in Bangalore that: “Instead of raising non-issues and fictional issues, they[the Congress party] should find out where their leader is.”
After Rahul returned to India, Sambit Patra,
a BJP spokesperson said: “He (Rahul) is confused. He does not know what he wants to do with his life, whether he wants to continue in politics. He has to answer to the people.”
Such statements are a part of the broad strategy of BJP of talking about a Congress mukt Bharat (an India without the Congress party). “Congress Mukt Bharat is not merely a slogan, but the determination of the people of India,” Narendra Modi said in January 2014, when the campaigning for the 2014 Lok Sabha elections had started. Since then, many leaders of the Bhartiya Janata Party(BJP) have used this slogan on many occasions.
Nevertheless, a slightly strong Congress party might work to the advantage of the BJP. And a
Congress mukt Bharat may not necessarily be good for the party. Why do I say that? Take a look at what happened in the recent elections to the Delhi assembly.
The BJP got 32.2% of the votes polled. This was marginally lower than the 33.07% of the votes that the party had polled in the assembly elections held in December 2013. The Congress had polled 24.55% of the votes in December 2013. This collapsed to 9.7% in the recent elections. The gainer was the Aam Aadmi Party (AAP). The vote-share of the party jumped from 29.49% to 54.3%, helping the party win 67 out of the seventy seats in the assembly.
What this clearly tells us is that the entire collapse in the vote for the Congress moved to the AAP. This in a way ensured that the anti-BJP vote did not get divided and helped AAP win almost 100% of the seats in the assembly. If the Congress vote hadn’t collapsed as much as it did, it would clearly helped the BJP win more seats in the Delhi assembly. Hence, a stronger Congress would have helped the BJP in Delhi.
Now, along with this let’s look
at an interesting piece of analysis on the 2014 Lok Sabha elections carried out by Neelanjan Sircar, a Postdoctoral Research Fellow at CASI at the University of Pennsylvania. In his analysis Sircar found that: “Consider the constituencies in which the BJP and Congress were the top two vote getters; there were 189 such constituencies, and the BJP won 166 of them for a whopping strike rate of 88 percent. By contrast, the BJP’s strike rate was even (49 percent) in the remainder of the constituencies it contested.”
What this clearly tell us is that when it’s on a one on one with the Congress, the BJP does well. But the same cannot be said of a situation where there is a multi-party contest. In a multi-party contest, a strong Congress party can help in dividing the anti-BJP votes. While this may not matter in the bigger states like Rajasthan, Gujarat and Madhya Pradesh, and smaller ones like Chattisgarh and Himachal Pradesh, where there is a direct contest between the BJP and the Congress, it matters in many other states like Bihar, West Bengal, Tamil Nadu and Assam, where the electoral contest is multi-party.
In fact, in the first past the post system (an electoral system where the candidate winning the most votes wins, even though there might be more votes against him in total) that India has, a divided opposition can really help the ruling party. And for that divided opposition to become a reality, the Congress party needs to be on a slightly stronger wicket than it currently is.
This rule comes with a corollary. The BJP has to hope that the Congress does not come together with other opposition parties like it did in Bihar in August 2014, when bye-elections to 10 assembly seats were held. The vote percentage of the BJP plus the Lok Janshakti Party was at 37.9%. The vote percentage of Rashtriya Janata Dal plus Janata Dal (United) plus the Congress party came in at 45.6%. So, all said and done, the anti-Modi vote does remain strong. And it can create huge problems for the BJP.
But the other parties coming together is not a possibility in every state. Take the case of West Bengal where the Trinamool Congress and the Left Front are unlikely to come together for the assembly elections scheduled in 2016. A weak Congress party will mean that its votes will move to the Trinmool Congress and that can’t be good for the BJP.
The BJP cannot be expected to form the government in West Bengal. But in the 2014 assembly elections it got 17% of the votes polled. Given this, the party can expect to win more than a few seats in the state assembly.
Further, the assembly elections in Bihar are due later this year. It is important that the BJP does well in the state given that it elects 16 members to the Rajya Sabha. West Bengal also elects 16 members to the Rajya Sabha.
The BJP currently has only 47 members in the Rajya Sabha and hence can be held to ransom by the opposition parties in the upper house, whenever it wants to pass any important legislation. The Land Acquisition Bill is an excellent example of the same.
In order to increase the number of members in Rajya Sabha the party needs to do well in the state assembly elections scheduled over the next few years. And for that to happen, the BJP needs a stronger Congress party. In short, Modi needs Rahul.

The column originally appeared on The Daily Reckoning on April 21, 2015