Clueless Congress Wins Election

Congress Party, which few days back was sulking for allies in post-poll environment and predicting its own lack of numbers to form next government, surprised everyone with election results. Congress party won 201 seats much above its own expectations.

At the end of fifth phase of polling Congress General Secretary Rahul Gandhi had made admission of his party’s impending failure and his desperation to form government with support from his opposition parties, he even went on to name his Andhra Pradesh opponent Mr Naidu as his next possible ally just before Andhra Pradesh went to elections and Rahul Gandhi hadn’t expected that his party will gain even 29 seats ( that it held in 2004) against 33 that Congress Party won in this election.

Confusion was not only about one state, Congress Party was unsure of its own gambit in Uttar Pradesh, it hadn’t imagined its wildest dreams that the party would end up winning 22 seats, Congress had even second thought about its own ally but was quite sure of stupendous performance by party’s opponents be it Mayawati in UP or Jayalalitha in Tamil Nadu.

Congress is now as much surprised at its win in several states like Tamil Nadu, Andhra Pradesh and W Bengal and as it is at the success of Rahul Gandhi’s strategy of going alone in UP. Congress in not basking the glory it hadn’t dreamed for long time.

The Rise and Illusion of Political Kingmakers

This nation of kings/rajas was replaced by the democratically elected representatives but now new political class is emerging all over India. This election has brought up hordes of politicians who now claim to be kingmaker for next government. Every party chief now seem to have become kingmaker in next government or so they claim.

It all started when the communist block leaders claimed that it will be they who will decide who will form the next government and who will be the next prime minister. Since then almost everyday one or the other head of a political party has started making such claims. First, it was Lalu Yadav, who claimed himself as kingmaker for being leader of the Fourth Front and decider of who will be prime minister. Then, it was turn of BJD leader Navin Patnayak, who claimed that he will become kingmaker in next government and it could be any one of his favorites –Prakash Karat or Sharad Pawar could be next PM, hurling more names to all ready overcrowded list of wannabe PMs in this country.

Later, JD(S) chief Deve Gowda felt the need to be in space of kingmakers, though not in condition to play kingmaker himself, Mr. Gowda asserted that his party along with communist parties will play decisive role in next government. Following his footsteps Mr Vaiko perfectly timed his statement with Tamil Nadu reeling under Lankan tamil issue, Mr Vaiko claimed that Tamil Nadu will play decisive role in formation of next government and he would like Ms Jayalalitha to be next PM.

Almost every party, which is in governance or sulking loss of power has suddenly realised that they would be the next kingmaker in Indian politics none the less they fail to realise how narcissist they have become, who continuously fail to recognise not only country’s problem but also to get their politics right.

Alliances and Fronts for Fortune and Political Bargain

As India goes for polls, political parties are vying for electorate and even more for opponent political parities. Ever since alliances gained prominence in national governance, national parties have weakened. In last five years all the national parties, with exception of BSP, have lost their foothold and political might. This political development has made them increasingly dependent on regional parties.

This election, regional parties have gained a new prominence and notoriety in forming alliances some time multiple and confusing alliances. What is more atrocious about these alliances unlike the previous alliance formations like NDA/UPA, is that they have no agenda and political vision for this country nor do they intend to present the electorate with any vision document.

Parties don’t want to emphasize their development agenda as they are totally unsure of which political block they belong to, political parties such has BJD has created totally new political ideological dimension of “center-right-left” party where as NCP and RJD are toying with both right and left. Parties such as TDP, DMK,AIADMK, and numerous smaller parties with suffixes such as ‘lok dal’, “rastrawadi” and “samajwadi” don’t mind which party governs the nation if they get their political cut.

Then there is Communist block and BSP, who don’t mind anything about any political party if they are non-Congress and non-BJP. They have nothing do with the political ideology of such parties if they are willing to support their next government. No body seems to mind even if alliance partners are fighting each other unless their egos are satisfied. In some states BJP/Congress have to beg smaller parties to be allowed and accommodated with a few seats in such regions for promise of backing government at center.

This election almost every political party is worried about future of the party but not the country. Smaller regional parties have no vision for national development and they are not bothered either as their primary interest lies in the cabinet berth and sops for their region. None of them are interest in socio-economic plan of this country for next five years, which will benefit the nation as a whole and will percolate down to every state and region.

Non-Planned Expenditure for a Successful Political Gambit

UPA is in full swing of unveiling pre-election sops to the people. It first went to declare Rs 30,000 crore tax deductions, which is loss to revenue receipts. Then government announced increased in dearness allowance of Central government employees. A few days before this announcement, UPA was playing parliamentary morality card for not having long-term mandate to fight recession in pre-election time frame.

This is the second time in the row that UPA government is dolling out sops which it claims is part of government’s economic agenda. But, at the same instance it fails to include all such economic programs under budget. Last year every one in the government played itself as pro-farmer but when it came to budgeting it such huge expense government just forgot it as part of budgetary expenditure. A lot of such programs were put under non-planned expenditure out of budgetary provision to make budget look good. This year to government has played the same card by announcing economic sops, which are not part of budget.

UPA Government wants common population to aware only of the populist economic measure but it does not want the people to know the cost, which it will have to pay it in future. It is smartly widening the budget deficit for which it does not want to be held accountable in future.

A few weeks after the budget announcement, government has forgotten its parliamentary principals to announce massive plans to largely rope in voters then to effectively tackle the grim economic scenario. Government’s bet on cutting may not be entirely fruitful if industry does not pass on this cut to the consumers, which has often happened in the past. Pre-election sops are not always successful; a lot depends on underlying economic scenario.

ADB and S&P Stretches Govt on Either Side on Economic Recovery of India

Manmonhan Singh team which has been facing unrelenting question about country’s financial health received a shot in arm from one of the major financial institutions, ADB, about country financial condition. ADB described India’s economy as one with resilience amid global economic downturn. This will help government to ward-off questions relating to economy which government is finding hard to explain.

On the other hand, leading financial rating firm S&P has concluded that Indian economy will grow somewhere between 5.8% and 6.3% in 2009. This is much below the continuous claims of 7% growth by the government. S&P also forecasted that India will be on path of recovery by September this year, if economic scenario doesn’t deteriorate further. This is beyond the expectation and mark set by the government which wanted to reap the benefit of economic recovery during parliamentary polls this year.

Government is facing increasing number of questions for its economic mismanagement. Though, it expects last year’s farm wavier and pay-commission hike, which was not accounted in budget, to go down well with voters. But, opposition is already making case for financial negligence and with economic recovery would not happen as timed by the government; it would be tough for government to use this bait for voters.

US Presidential Inuaguration and Market Gains

There is high expectation on Mr. Obama to deliver. Markets are banking on his economic proposals to revive the Wall-Street. Not all presidents have succeeded in matching the market expectations. If we look at look at the presidential inauguration since 1980s majority of presidents have given markets a respectable gain a year after their inaugurals.

Bill Clinton is the president who gave markets’ their biggest gain a year after his first presidential inauguration. It was whopping 28.9%, highest for any president sine 1980. he is the only president to have given markets positive gains in both terms as US president. Ronald Regan and George W Bush, are other two presidents who have been president twice. They are also the presidents who gave negative returns to the markets a year after inauguration of their first term. But they succeeded in giving markets a good gain a year after inauguration of their second term.

George W Bush has been the worst performers amongst all presidents since 1980s. Markets have gained only 7.4% a year after his 2005 presidential inauguration. His father George H W Bush had performed better, markets gained over 16% a year after his presidential inauguration in Jan 20, 1989.

It would be interesting to watch how markets perform during these turbulent times.

Mumbai Terror Attack Reveal New Strategy of Terrorists

With new terror strike in Mumbai terrorist have unveiled their new strategy of taking seize of economic hubs, random killing and fighting pitch battles with police force rather than blowing up locations in quick succession.

The strategy seems to be clearly aimed at denting the normal business life by taking seize of economic hub and preventing it functioning, thus causing enormous damage. These prolonged pitch battles are aimed at ruining the economic life and order as they did it in J&K. This has been extremely successful in long run, when frequent terrorist strikes have killed the economy. By taking aim at major business hotels they have already signaled that Mumbai is not going to remain safe place to do business.

Another aspect of their economic terrorism is taking tourists hostage and attacking tourist hotspots like Colaba. India has already entered in bad map of foreign tourist with one after another city becoming unsafe for them. This will have larger impact on tourism and hospitality industry both in Mumbai and rest of the country.

Further, random targeting of civilians at all possible public place is going to play havoc in the minds of citizens will change the mobility pattern of urban population in India. Any future replication of this Mumbai terror attack in other cities is going create major trouble for economic growth of the country.

Avoiding Unemployment as Poll Issue

Employment has suddenly emerged as the issue that is jolting the confidence of both politicians and businessmen alike. The government once again caught off-guard, is in mood of denial as it did in case of credit crisis and economic slowdown. The government seems to not woken up to the reality or it’s the Prime Minister Manmohan Singh, who wants to divert the attention by making claims about the economic growth. Mr Singh once again in a summit last week said that India would achieve next year’s growth target of 8%, when a few weeks back they were claiming it would be 7%.

Rising unemployment rate during elections are major embarrassment to any government, UPA recognises this fact and thus avoid any talk on the issue to prevent its escalation in media. The government and PM has kept on making statements about India’s miraculous future growth despite global slowdown. Finance Minister has severely criticized reports on layoff by industry and suggested industry could manage downturn without downsizing. The government has been trying to hush-up the matter. It want to keep the issue of unemployment under carpet to avoid any further jolt to its chances of winning election.

Almost every sector in the industry be it retailing, technology, automotive, textiles and exports are under pressure to shed labour and bring down production to avoid any closure. Government has no business in directly supporting industries in this business cycle, it should have taken steps to boost economic growth but it has even failed on this count.

Is P-Notes revision aimed at Realty stocks and Politico’s investment confidence?

P-Notes are back. After government cracked down on P-Notes last year to tame the bull-run, now government has revised it guidelines to enable foreign institutional investors to issue Participatory Notes where underlying asset is derivative. SEBI has also struck down the rule which limited the FIIs capacity to issue P-Notes only up to 40% of the value of assets held by a foreign fund.

Is the present move by government to remove restrictions on P-Notes aimed largely at Realty companies? Realty stock index on BSE has declined by 77% since the beginning of the year. It is the biggest decline amongst the sectoral indices on BSE. Last year’s favourite sectors i.e. Realty, Banks and Metals and Capital Goods all have been thrashed in the market this year.

Realty stocks gained prominence in last two years when large number of companies came out with IPOs and soon they were reports of politicians and their families having stakes in these real estate companies. Also, a number of politicians parked their money through hawala channels, which entered the market through P-Notes. Ever since the restrictions were imposed on Realty index has continued to slide. Financial crisis in the US took the shine off from FII and Hedge Funds, which had invested heavily in the real estate companies. P-Notes restriction took the toll of real estate stocks and they started falling like house of cards.

As the politicians lost most of their investments in stock market and the value of their real estate stocks came down to one-third of the investments, the government suddenly felt the need to bring back P-Notes, which it had describes as ‘Hot Money’ that created volatility in the markets. The much despised instrument, which was blamed for the skewed investment trend, is now the rescue measure to resurrect the market in same old way that had led to irrational exuberance in the market. Every one in the government is gung-ho that it will restore the “investors’ confidence”, it is really matter of concern for the individual investors that which ‘Investor’s’ confidence government wants to restore now.

Plebiscite to solve farmer’s plight and land acquisition for industrialisation?

Maharashtra’s decision to hold plebiscite for MahaSEZ is radically different from WBengal’s decision on land allotment for Tata. This is evolutionary attempt in land acquisition policy for industrialisation. The news of plebiscite is bound to give sleepless nights for corporate, who will find it difficult to deal with the new situation. The new arrangement brings in a new party into the process.

The process gives farmers/land owners right to decide whether they would like to part of an industrial project or not. This is a good step in reducing the backlash over industrialisation in rural areas. It would also give farmers better say in rejecting any proposal to acquire land without a good and sustainable package.

However, there are also chances of manipulation of farmer’s interest as any misinformation would jeopardise interest of both stakeholders. Also unclear is what would happen when a minority of farmers oppose the project. The present policy provides that government will buy only 30% of total land for the project. Will government buy that small portion of land in case of opposition by farmers? This would add more uncertainty.

Government needs to bring in more clarity to the acquisition process, it should take notice of the new experiments and concepts, but until and unless government brings in new measures and rationalise the land acquisition, it will remain contentious issue.

Indian Govt claims record Rice Procurement, Mulls Rice Exports. Is it another Blunder?

Just a few months back several state governments had announced to provide rice at Rs2-4 a kg citing soaring prices of food grains and shortage as a reason populist measure to make this staple food available. Government had also banned the export of rice and India subsequently vanished from the list of rice exporting nations. Now comes the announcement from the government agency Food Corp of India (FCI) that India will be able to export rice this year. Unbelievable it may sound but, the FCI says that it has already bought 28 Mn tones of rice from farmers, much higher than the target, thus will be in position to export it.

Ironic it may sound but India as few months back government was pleading helplessness over controlling food prices now the government has indicated that it may lift the ban on non-basmati rice exports after October. Food management program in India is not only incoherent and inconsistent but also lacks vision. No one knows the possible reason for government’s enthusiasm for rice exports (probably except exporters) when future food security is on question mark.

Just few months back, government put advertisements on every tv channel claiming bumper harvest but it failed to procure wheat and had to import wheat at twice the rate which it was unwilling pay to the domestic farmers. Now government claims that its wheat inventory stood at 23.5 Mn tones, much above 13.5 Mn tones last year but, it has no answers why it couldn’t get wheat for poor. The political apathy with food security is to such intolerable extent that India is probably the only country where bumper foodgrain gets spoiled in poor storage facilities and worse it buys spoiled foodgrain for its people, yet it never stops at taking hasty decision and looks short-term benefits overlooking the long term concerns.

Tata & Ambanis: Ethics Vs Acumen

In span of few months we have seen that one industry house has failed in its dealing with the government while other has succeeded in its endeavor to gain business. While, Tatas are sulking at the failure to break the political deadlock over its ambitious small car project; Ambanis have successfully negotiated with their political adversaries and twisted proposals for windfall tax.

Irony exists between the two industrial houses (well its three now but thinking more or less unites Ambanis). One of the oldest business houses, Tata, believe in more old fashioned way of creating wealth, setting up private ventures with financial institutions. But, they are quite modern about business ethics and governance. Ambanis, on the other hand are more flamboyant with creating wealth for themselves and public through public investment. Though, the same public (and even government) doesn’t have a hint about the company structure and shareholding pattern.

Both Ambanis and Tata pursue policy matters but Ambanis do it more aggressively, they manage to get politicians on every committee to lobby for them. The Ambanis have been maneuvering policies for their good; if something would adversely impact their business they never hesitate to reach out to the top. Tatas on the other hand wait for the policy announcement to come out. Tatas had to scuttle their aviation project with Singapore Airlines due to policy hurdle but Ambanis never had to. One Ambani kept windfall tax at bay; the other prevented scrapping of dadri power project and got into Pension Fund management, where it was not even shortlisted.

But, Ambanis had to pack up their retail biz in many states. Tatas to had trouble with land acquisition in past but not as much as it is in Singur. Also, Tatas seem to have been unable to use their experience in dealing with states that have had inconsistent economic policy (i.e.Bihar, Chattisgarh) with respect to Bengal. They really believed that communist would replicate china’s model without any trouble. Ambanis have been cleverer in continuously amending their offer for land acquisition in case of MahSEZ in new Mumbai. One thing that is visible is none of the Indian industrial houses have learned lesson to tackle is public unrest over industrial projects.

BSNL IPO: Anti-privatisation or under-valuation?

Government and Trade unions are again at clash over mulling IPO of public sector telecom giant BSNL. Trade unions see this move as a step towards privastisation of BSNL and thus they are dead against the PSU going public. While the government insists that listing of BSNL is necessary for granting “Navaratna” status, union leaders feel otherwise. They point out “Navaratna” companies such as HAL and LIC, which are still not listed. Another reason for unions’ opposition is the past decisions by government of ultimately selling listed PSUs like VSNL and BALCO.

Unions are also using the VSNL/BALCO sale as argument for undervaluation. They have accused government of undervaluing the PSUs and are using case of BALCO sale to strengthen their argument. The government has valued BSNL at around $100 bn based on the Vodafone and HutchisonEssar deal. However, the unions are in opinion that BSNL is valued ten times more than the government valuation, which would put it at $1,000 bn. According to union’s estimation, the actual divestment of shares for the IPO collection should be 1% of BSNL shares not 10%.

The BSNL valuation funda becomes murky, as the government assessment based is based on some deal and some other company with less similarity to BSNL. Vodafone, unlike BSNL attracts customers that attach premium to the service offered by the service provider while, BSNL’s product offering is considered economical. BSNL also has large number of workforce and its productivity and efficiency yet to be determined. Its growth rate has not been as high as some private players in GSM market.


But, BSNL still is the largest telecom player and has virtual monopoly over wireline and rural telecom business, plus it is a big time player in long distance call and internet business. Its tower unit will attract huge valuation. Also, unions prefer companies to be valued on their assets rather than their net worth and business prospect. The government, which is in desperate need of funds will like go for IPO as early as possible but its one time friend and present nemesis, CPI & CPM, are bound to create ruckus over the issue of valuations.

Economic fallout of Trust Vote

Now that government is done with trust vote and markets are about to wind up the sentimental rally, it the time to ask the question will government take tough economic decision as desired by the markets?

The coalition’s new partner SP has much neither much knowledge nor much penchant to interfere in economic policy until unless someone ask them to do it. So, in past four years they were very much against insurance, retail and pensions reform, which communist were insisting. But, in the new context they seem to be more concerned about their economic benefactor, which implies strict no-no to FDI in retail which may benefit Mukesh ambani. Also, petroleum ministry will be mired by all sorts of lobbying.

DMK is happy with its RamSethu bargain and rest like JMM has no clue whatsoever with the kind of reforms will take place. That leaves us with Congress, which is driving the UPA now.

Congress only faces the problem of perception and it matters a lot before elections. The party is already seen a failure in the economic matters concerning “Aam Admi” and its slogan is more or less read as “Congress ka hath NOTE ke sath”. Markets and traders will all like to see every bit of legislation that can benefit the markets get passed on, specially the Pension reform, which will benefit the markets most. A push in the market will also add to Congress’ election coffer. But it is the million dollar question; will Congress face all criticism just before elections to push the markets?