Coming of age of the Indian voter and a Wake-up call for the States!

This article has been written for the news website Newslaundry and was published on the 4th of Oct, 2019. You may read the same here:

https://www.newslaundry.com/2019/11/04/a-wake-up-call-to-states-its-time-to-invest-in-good-governance-to-win-assembly-polls

The latest season in the continuous cycle of elections in India ended last week, this time the Assembly polls in Maharashtra and Haryana. The dust hasn’t quite settled since Maharashtra still hasn’t seen its next government, even after what seemed like a clear verdict in favour of a pre-poll alliance. It can’t get stranger than this!

However, a detailed look at the results of the state elections before and after the Lok Sabha polls reveals a pattern. It discloses the coming-of-age of the Indian voter. Here’s how, and why.

May 2018: Karnataka state election 

The Congress, which governed the state in the last term, received a clear verdict against the party in Karnataka. At the same time, the Bharatiya Janata Party, while emerging as the single largest party, fell short of majority. However, in the 2019 Lok Sabha poll almost a year later, the BJP got an overwhelming mandate winning 25 of the 28 seats on offer.

November 2018: Madhya Pradesh state election 

The BJP, which had helmed the state for three terms, was unseated by an anti-incumbency vote. The party was pipped by the Congress. Yet, in the May 2019 parliamentary poll just six months later, the BJP swept the state, winning 27 of the 28 seats!

November 2018: Chhattisgarh state election

Here also, the BJP was voted out by a strong “against” vote and the Congress captured the state with a decisive mandate. It’s vote share was just 33 per cent. In the May 2019 Lok Sabha election, the story was different. The BJP won nine of 11 seats with a vote share of 50.9 per cent.

November 2018: Rajasthan state election

Again, the state went against the incumbent party, the BJP, and voted the Congress to power. But in the Lok Sabha poll, the BJP swept the state with a decisive vote share of 58.47 per cent, winning 24 out of 25 seats. Even the final seat went to an ally of the BJP.

December 2018: Telangana state election

The Telangana Rashtra Samithi managed to beat anti-incumbency in the state and retained power with an overwhelming mandate. It got a three-fourth majority and won 88 of 119 seats. The Lok Sabha poll flipped this win: TRS secured only nine out of 17 seats.

May 2019: Odisha state election

The governing Biju Janata Dal returned to power with a decisive mandate, winning 111 of a total of 147 seats in the Assembly. There was no trace of anti-incumbency. In the Lok Sabha poll held simultaneously, the BJD managed to win only 12 of 21 seats. Its vote share also fell by 1.9 per cent.

October 2019: Maharashtra state election

The BJP and its ally, the Shiv Sena, secured 161 seats with a combined vote share of 42.16 per cent. As a pre-poll alliance, they managed to get a majority. This result comes six months after the Lok Sabha poll, where the same coalition had bagged 41 of the 48 seats with a comfortable vote share of 51.34 per cent. What this means is the alliance lost a vote share of 9.18 per cent in just six months!

October 2019: Haryana state election

Though the BJP emerged as the single largest party, it fell short of a majority. Only with the support of the Jannayak Janata Party could the BJP eventually form the government. Compare this with the Lok Sabha election where the BJP won all 10 seats in the state, implying it lost a vote share of almost 21.71 per cent in the Assembly election.

Only in the northeastern states of Tripura and Nagaland, where the state elections happened in February 2018, the electorate voted for the BJP alliance in both the Assembly and Lok Sabha polls.

What are voters looking for?

Voters know what they’re doing. There are different combinations: voting for the same party in state and central polls; different parties being given the mandate in the state and central polls; or the extent of mandate differing if the same party wins in both elections.

If this trend holds — which I believe it will — this augurs well for Indian democracy. The voter is sending a clear signal that she understands the issues for which she is voting in a particular election. This is different from the general commentariat opinion that voters do not know what they are voting for.

This brings us to the next section of this piece: understanding the different issues voters vote for in the Assembly and Lok Sabha elections. Glancing at the results of the 2014 and 2019 general elections, here’s a quick breakdown of what, perhaps, voters are voting for in the Lok Sabha poll.

– For a face. The Lok Sabha polls are increasingly becoming presidential. Voters like to know the face of the prime minister they’re voting for. If parties do not project a clear prime ministerial face, they start with a handicap.

– For a party whose leader is seen to be strong, decisive and communicative.

– For a party’s stance on nationalistic issues related to India’s defence policies, the way we deal with our neighbours, the way we conduct our foreign policy, and so on.

– For a party’s overarching welfare programmes related to health, education and other issues.

– For an overall image of an honest, non-corrupt and functional government.

On the flipside, a voter clearly expects their state government to deliver on day-to-day issues like living conditions, infrastructure and delivery of the Centre’s welfare programmes.

Hence my hypothesis that the emerging voting pattern must serve as a wakeup call to the states to double down on governance issues. Even if a party receives an overwhelming mandate in the Lok Sabha polls, it does not translate to a resounding mandate in an Assembly poll unless it gets its act together on delivery of governance. States can no longer ride on the charisma of a central leader if they haven’t done their bit on the governance front.

It’s also time the commentariat shifts its focus and scrutinises the governance levels of states. This means analysing state budgets and not just the Union budget, and regularly evaluating a state’s financial health. It implies comparing the appetite for reforms within states, not just at a central level.

I firmly believe next generation reforms, which can make a difference to the economy, lie at the doorsteps of our states. Labour reforms, DISCOM reforms, land acquisition reforms, PDS reforms, agricultural reforms — multiple issues related to the daily livelihood of the poor are in the hands of states. It’s time chief ministers wake up to this and invest in running key ministries at a state level that deliver governance. If the results of the last few Assembly elections haven’t served as a wake-up call to the states — nothing will.

Howdy Economy?

“Howdy” is in the air in India these days! With Prime Minister Narendra Modi set to address the global Indian audience from the NRI platform at Houston, which has been branded as “Howdy Modi”, this American slang has got into the Indian vocabulary!  But, in India, ever since the 1st Quarter poor GDP results were out, the commentariat has been asking just one question “Howdy Economy?” Because, Indian economy is believed to be in ICU where the Chief Doctor was not giving much attention!

In India, the time tested tradition has been to undertake reforms when there is a crisis. Economist and Author Shankkar Aiyyar explains this beautifully in his book – “Accidental India” with back stories behind every single historic economic initiative of post independent India. The bottom line being, we take such drastic steps only when push comes to shove!

It looks like the latest decision of the government to slash corporate taxes drastically in one go from 30% to 22% is one such initiative which will have a lasting positive impact on the economy but which was taken when the answer to Howdy Economy question was very, very feeble. Naysayers notwithstanding, simplifying the tax structure, eliminating the myriad exemptions and having a reasonable low rate is a welcome move. It will make the industry competitive, make it more profitable, attract both foreign and domestic investments thereby have a trickle-down effect on the economy.

I saw some commentary that, this is more of a long term treatment and not an answer to the short term woes. Indeed yes. There is no silver bullet that can get the economy growing at 8% and more. It needs a combination of measures that are short term and long term. My belief is that, irrespective of the condition of the economy, a simple and low corporate tax structure was anyway required to grow the economy from the 8% levels we were couple of years ago, to 10%. With the economy struggling at 5% levels, the crisis like situation galvanised the government into action. Finally, the progressive reduction in corporate tax from 30% to 25% which was promised by the then Finance Minister Arun Jaitley in the 2015 budget has been executed by his protégé Nirmala Sitharaman. She has done it in one stroke and has gone a step further reducing the rate to 22%.

While the reduction in corporate taxes is a supply side reform, steps are required in the demand side as well. With the transition to the GST regime, the government has less flexibility to announce stimulus like in the past where excise duty or Sales tax cuts used to be announced to boost demand and consumption. In the present GST regime, the GST council has to take a call on the same and make those adjustments. Some of the announcements on GST rate reduction on hotel tariffs are in this direction.

With the reduction of corporate taxes, there is a loud clamour for reduction on the personal taxes front. Experts keep saying that this will put more money in the pockets of the salaried class which will make them spend more. I am not too sure of this. In the past, whenever there has been some personal income tax slab changes and effective rate reduction, we hardly came to know of the savings or reduction. And I don’t think anyone then consciously went to spend the money saved! Of course, it is more of a mood lifter and gives a feel good effect to the salaried class. Beyond that, I am not sure if a personal income tax rate reduction will boost the consumption in the short run which is what experts claim!  Nevertheless, as I have opined in the past, simplification and reduction of tax rates is essential.  This will also remove the peeve that there is now too much gap between the corporate and personal income tax rates!

One positive signal from the last few weeks is that the Government is listening.  In today’s world, any government of the day can choose to ignore the mainstream media. However, it cannot afford to ignore popular opinion which manifests in social media. As someone said, in India, we have as many economists as we have cricket experts! But the good part is, thanks to social media, apart from the secluded voice of the commentariat, there is an opening for “People like us” to give our opinions.

Ever since the tax cut announcements, there has been much discussion and debate as to whether it is right, whether it is sufficient, whether it is too little – too late, if it is pandering to corporates and so on. And if things can turn around quickly? With the festive season coming up in India, it is all about signalling and lifting the spirits and mood. When there is bad news which usually reaches us through the media, even if we are not directly connected to it, we all start talking about it, isn’t it? I refer to this as the economy suffering from “Headlines syndrome”! So similarly, when there is positive cheer emanating from even a single but important decision like this, it has a ripple effect. So, I hope this corporate tax cut move leads to such positive ripple effect in the coming days! And the answer to “Howdy Economy?” becomes loud and cheerful in the coming days!

Postscript:  In my earlier posts, I had said,

As a purely short term stimulus, any capacity building in manufacturing industry by way of new factories, expansion of plants,.. should be provided with tax relief”

And

With respect to taxation, “In simple terms, the mantra should be lower tax rates with no or very few genuine exemptions

Glad both these found resonance with the government and have been implemented!

Resorts as the 1st resort!!!

How many still remember Jaspal Bhatti? If you are from the Doordarshan generation just like I am, you will not have any problem in recalling him. Jaspal Singh Bhatti was the 1st known political satirist on Indian Television. Through his shows Ulta Pulta and Flop show in the 80’s and 90’s, Bhatti took pot shots on what was happening around us in the political scene and we eagerly looked forward to his shows. A clip from one of those shows where Bhatti dons the role of a “Buyer and Seller of MLAs” for political parties who lose MLAs to defection, landed as a WhatsApp forward few days ago. Someone recalled that episode and circulated it to remind us of Bhatti’s foresight looking at what is happening in Karnataka and Goa in the last few days! If Bhatti were to be living amidst us today, I am not sure if he would be proud or feel ironical of his prescience!

In India, what’s happening these days make a mockery of the famed “Anti Defection Bill” which was introduced in the late 80’s by Rajiv Gandhi to put an end to the Aaya Ram, Gaya Ram routine that was common in those times! For some time, one felt that we found an anti-dote to defections once for all. But then, we Indians are reputed to find innovative solutions to any problem. So soon, a loop hole in the Anti Defection law was found and exploited. Which is – the bill only prevented individuals from defecting but did not mind splits and mergers of parties with 1/3rd of members! So Aaya Ram, Gaya Ram has now given way to “Aaya Toli, Gaya Toli”! Or like what is happening in Karnataka, legislators just resign as MLAs bringing down the strength of the house and thereby of the party/front in majority!

What is common among Goa and Karnataka? These are states where the polls threw up a fractured verdict.  No single party got an absolute majority. Even a pre-poll arrangement could not garner majority. A government could be formed only by cobbling up a post-poll alliance! In a democracy, there are inherent problems with such post-poll alliances. The parties don’t face the electorate with such a premise. And when voters cast their votes, they for sure do not expect those who fought bitterly against each other during the campaign to come together as allies and conjure up a government! This is exactly what happened in both Goa and Karnataka!

The tamasha doesn’t end there after the Government is formed, as we have been seeing in Karnataka! Every other day we find the Government on the throes of a crisis of survival. Governance be damned because it is a question of “Return on Investment” (ROI) for many! One group is not complaining though! The resort owners! They don’t have to worry about their ROI! Every now and then a political party suffering from a threat of group defections hordes their MLAs to resorts in other states, usually the friendly ones, to firewall them from offers and counter offers. Horse trading is the term used for this in popular lexicon. Frankly I feel that it is an insult to horses! Another rhyming word though a bit unparliamentary would make a better fit as we are talking about seats and chairs here!

“Resort politics” which was invented originally by Devi Lal of Haryana in the 80’s has now been internalised perfectly by most of the parties. Hotel Viceroy in Hyderabad became a sort of a tourist attraction after Chandrababu Naidu used it to house his MLAs during the infamous coup he staged against N.T.Rama Rao. What does it speak of the MLAs who are supposed to be people’s representatives who allow themselves to be hoarded from one city to another and lodged in resorts?

It is not very difficult to imagine the trade-offs in these situations. In Goa, 3 of those who defected from the Congress have been made ministers with one – Chandrakant Kavlekar, even being made the Deputy CM of the state! Not to forget that he was accused of running shady businesses and land deals not so long ago by BJP! Similarly, the MLAs who have resigned in Karnataka would not have done so without Quid pro quo deals! What does all this say of Democracy? We cannot claim to be one of the world’s largest and best performing democracy by just routinely conducting free and fair elections! Elections are of course important through which, people get to elect their own representatives. However, Democracy I believe, is not just about this aspect. It should also be about deriving desired outcomes from the electoral process! From this point of view I feel our current democratic process is flawed and need serious reforms!

First up, the Anti – Defection law needs a re-look. If a candidate has gone to the voter and obtained votes as “A” party’s candidate he should not be allowed to defect to party “B” after becoming a legislator. Period. Similarly an “Independent” candidate should clearly indicate his allegiance to a front or his true non-allegiance to any front before the elections based on which he should seek votes from people. Once the candidate does that and becomes a legislator he should not be allowed to switch allegiance post the elections. In short, there can be Zero defections once an election is over.

Second, which I have written before as well (Read the post here) is on the veracity of “Post poll alliances” in a democracy. I sincerely feel that the concept of Post poll alliances is actually a fraud being inflicted on the voting public. More often than not, even the so called liberal commentators are fine with governments being formed through post-poll deals under the premise of “Politics is the art of the possible”! I really don’t know in which context Otto Von Bismarck, the German statesman made this statement! But it has been imbibed very well in Indian politics. Under the current circumstances, I would like to make a small change to that philosophy to read as “Politics is the art of the plausible”! Plausibility adds that credibility bit.

If the above are implemented, it will put an end to this tamasha of “Resort politics”! It was George Bernard Shaw who famously said, “Politics is the last resort of the scoundrels!” If he was alive, Jaspal Bhatti in his own inimitable style would have made it sound like – “Resorts are the first resort of politicians”!

Postscript: The term “Horse trading” owes its origin apparently to the notorious shrewdness of Horse traders who are involved in long drawn mostly dis-honest negotiations while buying and selling horses! (Courtesy: TOI)

Image courtesy: Asianetnews

Agenda for Modi 2.0!

Dear Mrs. Sitharaman,

First things first. Congratulations on becoming the finance minister of the country. Ever since you have taken over, there has been a flurry of unabated, unsolicited advice on what you should do and should not, in the upcoming budget. I was extremely reluctant to add to that already long list. But then your extremely gracious and earnest tweet the other day, welcoming all suggestions and inputs changed my mind.  Being from Trichy as well, I could see the “Trichy Tehzeeb” in that request!  Hence this piece, with my wish list not just from the budget but overall from the Modi Sarkar 2.0 from an economic agenda point of view.

I am not an Economist. I am just a keen and informed observer of Indian politics and a well-wisher of our country. So, my points may or may not stand the scrutiny of economists but hopefully will pass muster with the readers of this post.   I promise that I am not going to repeat a lot of stuff which has already been suggested by the erudite in their pieces.  So, here we go:

  • First up, the positive effects of implementation of GST and the kicking off of several infrastructural projects from the 1st term will start bearing fruits in the coming 2/3 years. So, I suggest that the 5 year term till May 2024 be divided into 2 parts – First 3 years till 2022 and the second 2 years till 2024. Take all the tough decisions in the 1st part and use the 2nd to stabilise things.
  • Second, in Modi 1.0, there have been quite a few hits but some misses too. In the 2nd term, on the back of a solid mandate, Team Modi should play on the front foot with confidence, while at the same time leaving alone deliveries outside the stumps and negotiating short pitched deliveries and bouncers with alacrity. In governance parlance, this means implementing even the not so populist decisions with confidence and not getting muddled in unwanted distractions.
  • Third, please request the economic ministries to come up with a list of things to be done to rev up the economy which is stuttering. Divide this list into 3.
    • 1 – Low hanging fruits which don’t need legislative backing
    • 2 – Which need bills to be amended, passed in the parliament
    • 3 – which need the states to take action

Get going on this list systematically. Have a target of 60 days to accomplish everything in the 1st list. This will give a clear message to all stake holders that this government is not the one to rest in its electoral success laurels!

  • Fourth, you are now in Japan and there is a lot we could learn from the Japanese in terms of going about things. One of the things I learnt from working in a Japanese company is “Prioritisation”! As Indians, we tend to focus on 100 things at the same time and spreading ourselves extremely thin. This was one grudge I had on Modi 1.0 which embarked upon so many projects simultaneously like Make in India, Skill India, Stand up India, Digital India, Smart City project, Ujwala programme and so on. If you closely measure the success, it is only the programmes which had focus like Ujwala, Rural electrification, Rural housing that met with success. In Modi 2.0, I would suggest that the Government takes up a maximum of 2 or 3 projects at a time, focus on the delivery with finite timelines and then move on to the next set of 2/3 ideas. This is what Japanese do.
  • Fifth, in India we have been talking of linking outcomes to outlays. But seldom has the same been acted upon. So, in the coming budget presentation on the 5th of July, please do not announce plain outlays but outlays that can be linked to quantifiable  outcomes.
  • Sixth, we usually see that in the budget, there are many outlays which are just carried forward year after year with a % increment or a % cut. For example, since 2013, money from Central Budget has been allocated to Nirbhaya fund to support initiatives towards ensuring women safety. One really doesn’t know how this fund is being utilised and after 5 years what this fund has achieved. This is just one example. In every budget, there are many sundry allocations like this. Please review item-wise outlays in the last 3 budgets,  respective outcomes achieved and allocate outlays in the coming budgets only if they make sense.
  • Seventh, considering the state of the economy, there is a need to mobilise resources to generate income and keep fiscal deficit under check. As Prime Minister Modi has been talking of “Minimum Government and Maximum Governance” one way of mobilising resources is by Government exiting many businesses that are no longer strategic in nature and monetising those assets. In Modi 1.0, in every budget, we had an item called “Proceeds from disinvestment” and this was achieved by making some PSUs like LIC pick up shares from the disinvested PSUs. During NDA-1 under Vajpayee, there was a clear focus on “Real” Disinvestment with a full-fledged ministry and a determined minister like Arun Shourie doggedly pursuing it. UPA did away with this and since then Modi 1.0 included, there has been no serious disinvestment in the country. I suggest that Modi 2.0 take this up seriously. A functional ministry named as “Monetisation of PSU Assets” (since disinvestment is seen as a bad word) should be formed. I also add that the proceeds from this monetisation be parked in a separate account and used for welfare schemes. By this, any criticism of the move can be countered by demonstrating that the proceeds of the same are being used for social welfare. A creative way needs to be found for accounting like this.
  • Eighth, in Modi 1.0, there was a big push towards infrastructure projects like highways and roads which was really commendable. The same should be continued with additional vigour. However, as admitted by Nitin Gadkari the pace of the projects could have been faster but for complex land acquisition issues. This is a big issue even today. In the 1st term, after initial belligerence, the government chickened out of the much needed amendments on the Land Acquisition bill. I remember Modi taking this up with rigour in 2014 basically because all the states identified certain provisions in the existing Land Acquisition bill as impediments for timely closure of infra projects.  Since the states are equal stake holders in this issue, please have discussions with a fresh outlook, strike a consensus and pass the amendments to the bill smoothly in both houses of the parliament. Renaming this as “Land Partnership bill” or something like that instead of the negative sounding Land Acquisition bill will help too to remove the negative connotation around this!
  • Ninth, taxation in India is still complex. GST implementation was a landmark Tax reform. I am sure there is a road map towards further simplifying the same with reduced tax slabs and simplifying procedures. Now, in this term please focus on Direct taxes. I hope that the panel working on overhaul of this will submit their recommendations quickly and your government should adopt the same ASAP. In simple terms, the mantra should be lower tax rates with no or very few genuine exemptions. Some of the exemption clauses we have are weird and defy all logic. For example the current clauses we have for LTA exemptions for salaried. Applicable for 2 years in a block of 4 that being calculated from the year 1986 and so on!!! Someone needs to do a Zero based hard look at all the existing exemptions for personal and corporate taxation and do away with most of them which don’t make sense in this day and age!
  • Tenth and the last one. On the 5th July when you leave your office for the parliament to present the budget, your team will hand over a brand new brown brief case which will have the budget speech. You and your team will pose with that brief case for the cameras and then you will read out the budget speech from the bunch of documents. And here’s what I suggest. Please, please do away with this brief case and the papers. Instead, amble along in style, pose for cameras with your hands “free” and as you rise to present the budget in the parliament hall, download the speech from the ministry’s secure server and project it in a large screen. Doing away with the rambling, long speech that would be just uber cool, while at the same time giving a push towards Prime Minister’s “Digital India” dream!

Pic Courtesy: Livemint

From Quota politics to a “Quota for politics”!

In India, they say the wheels of the Government usually move very slowly. Not always. When there is a political will, the same wheels can attain humongous velocity just like how it happened few weeks ago. The Cabinet approved a proposal for introducing a 10% quota for economically weaker section of the society on the 7th Jan. And by 9th Jan, the bill to amend the constitution for the same was passed by both the houses of the parliament! The quota bill was done and dusted in flat 3 days!

During the debate over the quota bill, almost all parties mouthed the usual platitudes – not on the proposal per se but on the timing. The coming together of the ruling and opposition for this cause demonstrated another aspect of “Unity in Diversity” in India. That is, on the issue of reservations which has high impact on electoral fortunes, almost all parties think alike. Herein lies the irony.

 “A quota for the economically deprived sections of the society” sounds logical and seems a significant forward step in our country which for a long time has been having quotas based on caste. As a step which doesn’t differentiate based on religion… it is high on optics.  But then, as they say the deadly devil lies in the details. This 10% is over and above the existing 50% as mandated by the Supreme Court for caste based reservations (with the exception of Tamil Nadu which has 69% reservations).

Before venturing into another quota based on economic class, I think that there was a need for an assessment of how the caste based reservations have performed in India in the so many decades since they were introduced, against the desired objectives. Based on what I have seen in Tamil Nadu in very close quarters, I have no doubt in my mind that the caste based reservations have helped in emancipation of a generation of people. Thanks to the quotas, many of the deprived sections could get access to decent higher education and then jobs. Which in turn have helped a generation of families to be part of mainstream India. This could not have been possible by another poverty alleviation programme, I believe. Having said that, the important issue to define now is how we will close the tap on this affirmative action.

We all understand that the originally envisaged time frame of 10 years for caste based reservations in India is impractical. Now that we crossed 68 years with reservations which typically means it has benefited two generations, where are we in terms of social equality and equity? Do we know? Do we measure? Who will bell the cat in terms of suggesting the sunset clause?  Do the offspring of those first two generations of people who could get access to higher education and government jobs need the same level of quotas as their parents and grandparents? In addition to quotas, what else is required for bringing down the class divide which still exist in the society? These are few important questions which arise.

The second issue is, the definition of the economically weak for the purpose of this bill. The provisions like a household income of under Rs. 8 lacs or owning less than 5 hectares of land seems to be extremely liberal when you look at all angles possible and government’s own definitions in other contexts.  In one stroke, above 95% of the populace has been covered under this ambit!  So, I join the naysayers who question the effectiveness of such a quota. From the total population, if you remove those who are already beneficiaries under the earlier quota regime (roughly 70% of the population), this new 10% quota is applicable for the economically needy among the balance 30% population.

The third issue is, there are different points of view if this will finally stand judicial scrutiny. As per the Government, the 50% cap was only meant for “Caste based reservation quota” while there are others who say that the cap applies to all reservations!

Finally, Affirmative action by definition means policy intervention for favouring individuals who are known to have been discriminated for various reasons in the past. Will economically deprived but not marginalised by caste, come under the category of those who were discriminated in the past? While the concept of helping those economically deprived is indeed noble, why not provide scholarships for higher education and assistance for business ventures instead of quotas?

You can question our netas on their intellect but we cannot under-estimate their political instincts at all. Not surprising that almost all the parties voted for this quota bill in both the houses of the parliament.

In the upcoming election season, the ruling NDA will certainly go to town for ushering this new direction on quota politics in India. However, even in the Hindi belt, I feel it will have minimum resonance. The opposition by playing ball on this, has in a sense blunted the political rewards what the BJP/NDA can reap. Imagine the situation had the Congress/UPA and others had opposed this move. So, all have played their moves smartly.

The bottom line is, a quota for economically deprived is as I said, provides for excellent optics and is sound politics. I do feel, like how the Supreme Court has put a cap on the quotas on reservation, we should have a cap on the quota for playing politics for every political party when in power. We cannot expect them to stop playing politics completely but, what about a Quota for politics?

Cartoon courtesy; Times Of India

Semi-finals and the many Confusing Signals! Part – 1

What has been touted as the semi-finals before the Grand finals in May 2019 just got over in India and the results from the 5 state elections are finally out. Though there have been surprises, more than the eventual result, the extent of the win or the loss from whichever side you look at it, has been more surprising. While in 3 states the margin of victory to the victor has been phenomenal, in the other 2 states, it’s been quite small. There has been many analyses and take aways of the verdict from pundits in the last few days but, to me, there is an important one. Which is, never before in recent times you have such confusing signals emanating from the voter from the heartland states. Before I go on to elaborate my hypothesis, honest disclosure. I am not from these states. I had not travelled to theses states in the run up to the elections. I have not had “elections on my plate” to gauge the mood of the voter. So my take aways are nothing more than armchair punditry based on what I gather.  So please keep a container of salt ready by your side as you read this.

This week, let me dwell on Rajasthan which according to me is quite interesting.

  • From BJP’s point of view, though they would like to spin the defeat in Rajasthan as extremely close and well fought out contest, in reality it has been a huge defeat. One cannot and should not gauge the extent of defeat based on opinion poll predictions or exit poll results and conclude that the fight was closer than expected. In reality, there has been a swing of 6.2% away from BJP resulting in a loss of 90 seats in an assembly of 200 compared to the last elections in 2013! This is not a narrow loss.
  • As per most of the commentariat, there have been very few plausible reasons to explain such a big defeat for the BJP.
    • First up, one of the reasons attributed was the outgoing Chief Minister Vasundhara Raje’s arrogance/attitude! Really? Raje is not new to the voters of Rajasthan. Before this term, she served the state as a Chief Minister for 5 years from 2003-08. She has been a MP and MLA from Rajasthan many times. She came to power in 2008 with a massive mandate defeating the Congress! So did people come to realise about her arrogant attitude only now? Or is it that she started behaving arrogantly only in the last few years?
    • The second reason attributed is – Rajasthan voters have the habit of throwing out the incumbent government and opt for a change if one goes by the trend in the last 20 years! Hence it is said that BJP giving way to Congress was on expected lines. Does it mean that people don’t care about governance and just throw out the incumbent government for the heck of it?
    • Coming to governance, Raje in the last 5 years, presided over the most reformist government among most of the states in India. Soon after she took over, Raje did the unthinkable in India of initiating labour reforms – a long-standing request from entrepreneurs and India Inc. What should have helped in attracting investments and aid economic growth, apparently has not worked, it looks like.
    • If I am not mistaken, under the support and supervision of economist Bibek Debroy, Rajasthan Government passed a bill to repeal whole lot of archaic state laws to make governance simpler.
    • In the context of UP, we are often told that people are no longer interested in Mandir politics but in development. But in Rajasthan we are told that people were unhappy with the Raje government when it decided to re-locate a few Hindu temples to give way for Metro in Jaipur!
    • Agrarian Distress – is the other reason attributed for BJP’s loss in Rajasthan. In most of states today including Rajasthan, agrarian crisis is not arising out of shortages (supply side) but due to a problem of plenty. In the sense, farmers do not get the right prices for their produce due to the excess supply. Hence the demand for higher MSPs. I don’t think higher MSPs will solve the problem in the long run, as it will shortly fuel very high food inflation which is again a bigger monster to handle, for the Government. The solution lies in raising farm income without raising MSPs beyond a point. For that, the issue to fix is the demand side bottle necks.  As I understand, some of the reforms undertaken by the Raje Government like creation of one agriculture market,… were supposed to take care of rationalising the licensing of mandis,… Have they not worked??? May be more ground needs to be covered here.
    • As you can see from the above points, Good Economics has not yielded Good political returns.
    • At the same time, it appears that the Raje Government’s waiver of farm loans of up to Rs. 50000 hasn’t worked either! So Good Populism has not yielded results also!

If you are an election strategist for the BJP, you many tend to conclude that these reforms or populism are of no use to win elections may decide to have a strategy to just pander to emotive issues. In Rajasthan have the emotive issues worked?

  • While the Raje Government started off well with the above focussed development agenda, I do believe that it lost its away trying to pander to extreme elements within the BJP. The government was practically silent during the entire Padmaavat episode when lumpen elements were running amuck.
  • In Alwar, there were violence due to cow vigilantism which the government was guilty of promoting. However cow vigilantism failed to come to the rescue of BJP in this region, where the party lost 16 of the 18 assembly seats!
  • So raising the pitch on emotive issues hasn’t worked either.

In the final count, the difference in vote share of just 0.5% may also indicate that while there has been a 6.2% erosion of vote share for the BJP, the anti-incumbency has not been strong enough to significantly dent the voter base of BJP. Hence, one will extrapolate the state election results and predict that BJP will face a rout in 2019 Lok Sabha elections at his own peril.

But in this state elections, what have the voters voted for or against? Was it

A positive vote for the Congress? Or

A Negative vote against the BJP? Or

Negative against the BJP at the Centre or State? Or

Neither a positive vote for the Congress nor a negative vote against the BJP?

Hence, my hypothesis that the voters while booting out BJP have also sent confusing signals as to why they have done so!

Post Script: When you know that he has been a CM twice over before and failed to win a second term in Rajasthan why would you again make Ashok Gehlot the CM for the 3rd time? This was a great opportunity for Rahul Gandhi to put his stamp and I guess, he let it go!

Can the ‘Gem of a scam” become “Gem of an opportunity’??

The debate on privatisation of Public Sector Undertaking (PSU) banks has a habit of rearing its head in public discourse in India with regular frequency. Not so long ago, it was when the PSU banks were hit by the NPA (Non-Performing Assets) crisis embodied by the likes of a fleeing Vijay Mallya. Later, it was when the Government finally took a call on recapitalisation of the PSU banks last year. And now, it is when the Nirav Modi – PNB scam, the latest to hit the Indian shores (and shares) surfaced. Yesterday even Arvind Subramanian, the usually reticent Chief Economic Advisor has joined the debate!

Reformists are of the view that the Government is betraying Winston Churchill again and again who famously said that “Never let a good crisis go waste” in the context of biting the PSU bank bullet. They are of the view that the repeated crises which hit the PSU banks provided a plausible excuse and “Gem of an opportunity” (pun entirely intended) for the Government of the day to privatize PSU Banks and thereby get out of the rigmarole of using tax payer’s money to keep bailing them out. The underlying assumptions being that the PSU Banks are run usually inefficiently and being under sarkaari control are subject to pulls and pressures.  While this is true for almost all PSUs in general, money being closer to the pocket and heart of the public, privatisation topic haunts the banks more. One cannot dismiss the very popular data point thrown in the above argument’s favour which is that the market cap of a relatively younger HDFC Bank which is privately held is higher than all PSU banks put together!

At the core of the argument against privatisation is of course the security it provides to the Aam Admi. Irrespective of what happens around the balance sheets of these PSU banks. The general public does believe that the Government will not let their savings go down the drain come what may. One remembers the furore and angst in WhatsApp groups recently when we were all told that our deposits above 1 lac are not safe if the banks go belly up. So, for any Government of the day, it is a minefield of a quandary to attempt privatisation of PSU banks unless it is completely politically immune to a public outrage and the after effects thereafter!

Be that as it may – the Government’s quandary I mean, the larger issue is the conflict bordering on hypocrisy in the minds of people like us which is – my direct stake in the bank by way of savings/deposits Vs my indirect stake in PSU banks by way of government’s stake which is in effect all our tax payer’s money. In short “My money” Vs “Our Money”! Nirav Modi has just swindled a government bank of few 1000 crores but that still is not “My money” though it is “Our Money!  And largely our outrage has stopped with laughing out loud (or is it laughing like Renuka these days?) looking at jokes, memes and sarcastic jibes on the Government while a smart cookie has “been crying all his way to the bank”! I think as individuals we are more concerned about the safety and security of our savings which we feel is protected if PSU banks remain as is – Government owned.  Even if that means

  • The Government of the day interfering in the day-to-day functioning
  • The Government mandating the banks to carry out populist programmes which may not make commercial sense but may make immense political sense to them
  • Mounting NPA’s due to favouring cronies of the likes of Vijay Mallya
  • The Nirav Modi kind of frauds due to conniving staff
  • Less accountability in the system.

At the end of the day, as along as the banks are Government owned, the only fix for all the above ailments is injecting more capital which is by tapping into tax payer’s money. It’s obvious that the same money if not used for bailing out banks could be put to use for better roads, power, water, electricity or even for that matter the proposed grandiose Health Insurance programme – stuff our country has been deprived of in the last 70 years since Independence.

The 1.6 billion dollar question is whether as tax payers and citizens we are okay and ready to let the government seize the opportunity and privatise the PSU banks? My guess is maybe we are not. And this stems from our socialistic belief that next to God, the Government is the savior and hence must protect us. And the constant fear associated with losing our money if not protected by the government.

In a country like ours which is evolving and is still a work in progress on many fronts like urbanization, education, social mobility,..,… the fear is mostly legitimate. Coupled with the fact that the private sector has not fully covered itself with glory. But the performance of the new private banks set up since the opening up of the economy in 1993, provide quite a lot of hope. For example, as far as we know, the new private banks are not part of the NPA problem.  Even during the 2008 Lehman shock, when all over the world financial institutions were rocked and many went belly up, in India none of the banks including the private ones were affected so much (though banks like ICICI had exposures to the subprime crisis) due to very strong regulations in India.  So, so far we could bank on these banks!

In summary, my point is may be if not all in one go, the Government could contemplate privatising PSU banks in batches of say 2 starting with the smaller ones. This will give adequate space to watch out for any pitfalls in the process and fine tune the same. This of course with the continued strong regulatory frame work in place.  The smooth completion of the ongoing privatisation of Air India may give the much needed heft to the Government.

With may be all banks out of governmental control in the next 10 years, the frequent exercise of tapping into “Our Money” to protect “My money” may be a conundrum of the past. The moot question remains if this current “Gem of a scam” will be turned into a “Gem of an opportunity” by the Government and that we as public will let that pass!

Postscript: Overheard in a lift: “These jewelers kept telling us that Diamonds are forever. But, they never told us that loans are also forever! Saala vaapas hi nahi kiya!!!

Toon courtesy: Satish Acharya