Modi needs Rahul

narendra_modi
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

What Narendra Modi can learn from Narsimha Rao

narendra_modiVivek Kaul

Before PV Narsimha Rao took over as the prime minister of the country, the finances were in a bad shape. Under the previous regime, the foreign exchange reserves had fallen to a level which was enough to pay only for three weeks worth of essential imports. In this scenario India had to take an emergency loan of $2.2 billion from the IMF. This was done by offering 67 tonnes of gold as a collateral.
Given this, Rao realized that he needed a ‘technocrat’ as his finance minister. IG Patel, a former governor of the Reserve Bank of India(RBI) was approached first. Patel, had been the fourteenth governor of the RBI between 1977 and 1982. After retiring from the RBI he was the director of IIM Ahmedabad. Between 1984 and 1990 he was the director of the London School of Economics.
Patel refused Rao’s offer and instead recommended Manmohan Singh. Singh had taken over from Patel as the governor of the RBI. He had a three year tenure at the RBI. After that he took over as the deputy chairman of the planning commission. In March 1991, Singh was appointed as the Chairman of the University Grants Commission(UGC). And this is when Narsimha Rao came calling and on June 21, 1991, the day Rao took over as the prime minister of the country, Singh was appointed as the finance minister.
Singh with the firm backing of Rao unleashed a spate of economic reforms which unshackled the moribund Indian economy and placed it on a much better footing. What is interesting nonetheless is that the entire period of Rao’s rule was not reform oriented. The economic reforms happened in the first three years and after that election considerations for the next Lok Sabha took over. Hence, the last two budgets of Manmohan Singh were of the ‘populist’ nature.
There is a lesson in this for the current prime minister Narendra Modi. Modi is likely to have elections on his mind more than Rao for the simple reason that his party and his allies are outnumbered in the Rajya Sabha. And if he has to establish a majority in the upper house, he first needs governments of the Bhartiya Janata Party in states. The BJP currently has 43 MPs in the Rajya Sabha and the NDA 63 MPs. This makes it difficult for the government to enact any legislation unless it calls for a joint sitting of both the houses.
Hence, elections for state governments are very important for the Modi government.
In this scenario it might is quite possible that economic reforms and even simple administrative decisions for that matter, may take a back seat. A very good example of this is that Modi had to wait for elections in Maharasthra and Haryana to get over before the government could announce the decontrolling of the price of diesel.
The good news is that an election free window of almost 11 months is coming up. As analysts Abhay Laijawala and Abhishek Saraf of Deutsche Bank Market Research point out in a recent report titled
Policy action to intensify “Following three state elections in December – Jharkhand, Jammu and Kashmir – there will be a near eleven month election free window, before Bihar state goes to the polls around November 2015.”
As can be seen from the accompanying table, after elections in the states of Jharkhand and Jammu and Kashmir are over, there is an election free window of close to 11 months. This table does not account for elections in Delhi, which also may happen soon.
The next big election is scheduled only in November 2015 in Bihar. The state has around 7.3% of the country’s Lok Sabha seats. It also elects 16 members to the Rajya Sabha. The Rajya Sabha has 241 seats in total. Hence, the Bihar election will be of significant importance. And it may not be possible to push economic reforms around the time elections happen in the state.
Hence, the time to push reforms is early next year, when the election free window starts. A good place to start with would be take the deregulation of diesel prices further, and start gradually increasing the price of cooking gas. Currently,
the oil marketing companies make an under-recovery of Rs 393.50, every time they sell a cooking gas cylinder.
As was done in the case of diesel, prices can be increased gradually at the rate of Rs 10-20 per month. Currently, the oil marketing companies face an under-recovery of Rs 188 crore per day on the sale of cooking gas and kerosene. A part of this amount is reimbursed by the government. This leads to an increase in the expenditure of the government and hence, its fiscal deficit. Fiscal deficit is the difference between what a government earns and what it spends. An increase in price will also ensure that over a period of time the black marketing of domestic cooking gas to hotels will become unviable.
Also, over a period of time as the government is able to increase its numbers in the Rajya Sabha it needs to introduce land and labour reforms as well. As Laijawala and Saraf point out “Most of the reforms in India, since 1991, have been broadly focused towards product and capital markets. Reforms in factor markets, other than capital, principally land and labor, have been broadly left out by all political administrations since 1991. We believe that a long era of coalition governments may be the reason for this anomaly.”
Narendra Modi’s government is not held back by the coalition dharma, as almost all governments since 1996 have been. Hence, it is in a position to push through some real economic reforms on this front. These reforms are of great importance if Modi’s call of
Make in India is to be take seriously.
Other than this, the Goods and Services Tax (GST) bill which has been in the works for a while, needs to be passed as well. The benefits of GST over the long term will be tremendous. “It has a very ambitious objective to wean away inefficiencies in India’s indirect tax value chain and ensure smoother movement of goods and services by converting India into a one common market, versus the current status where different states levy different types and rates of taxes, which introduces several inefficiencies,” write Laijawala and Saraf.
To conclude, Narendra Modi and his government need to make the best of the election free window that starts from January 2015 and try and make the best of it.

The article originally appeared on www.valueresearchonline.com on Nov 14, 2014

(Vivek Kaul is the author of the Easy Money trilogy. He can be reached at [email protected])