India business favors political change

India business favors political change

India’s Sensex stock market index (comprised of 30 market weighted shares trade on the Bombay Stock Exchange surged 487 points to 21,483 on the day after results from  four key state elections poured in last week.  The  UPA coalition, led by Prime Minister Dr. Manmohan Singh at the federal level since 2004, lost handily in all four states.  Business people celebrated since the last nine years of Dr. Singh’s ship have been largely rudderless.

The big winner was the Bhartiya Janata Party (BJP) which took the unusual (for India) step to declare its future prime ministerial candidate back in September.

General Parliamentary elections are due by May 2014 and all eyes are on Narendra Modi, the Chief Minister of the western state of Gujarat and the BJP’s Prime Minister designate. The Economist magazine calls him “ a man of action and an outspoken outsider in a political system stuffed with cronies.”  The magazine recounts how “Gujarat accounts for just 5% of India’s population, yet produces nearly a quarter of its exports.” While many accuse Modi of being anti-Muslim (or at least pro-Hindu), the Economist acknowledges “Even among Muslims, the poverty rate [in Gujarat] has fallen from 40% to 11% in two decades.”

Narendra Modi. Chief Minister of Gujarat
Narendra Modi

This month, BJP- led governments are forming in Rajasthan (with 80% majority seats in the legislative assembly), Madhya Pradesh (with 72% majority) and Chattisgarh (with 54% majority).  The  BJP does not contest the small and economically insignificant far eastern state of Mizoram where results were declared a few days later and Dr. Singh’s Indian National Congress party won over 75% of the seats. The state of Delhi (where the capital New Delhi is also located) is a toss-up.  BJP won 44% of the seats in Delhi and a new anti-corruption group, the upstart Aam Aadmi Party (AAP) came in second with 40%); Delhi’s Chief Minister  75 year old Sheila Dikshit of the Congress party lost her own seat to the head of the AAP, Arvind Kejriwal. Congress secured just  11% of the seats in Delhi.

It is unclear whether the AAP will be able to amass enough momentum in the next 120 days to win seats in the south, west or east of India.  While  the momentum for the BJP is clear, there is no reasonable way to reliably predict the results of the general elections based on these limited results. One can say for sure that Congress President Sonia Gandhi and her son Rahul (who was considered by some to the Congress candidate to replace the octogenarian Dr. Singh as Prime Minister) have a lot of thinking and analysis to do in order to determine how they were routed so badly.

Being an outsider in his own party, BJP’s Modi has the grudging support of some elements.  Bigger is a legacy problem stemming from communal riots in Godhra in 2002.  Many blamed Modi for inaction or worse during these riots which over 1,000 people died.  In the years that followed many international agencies from Amnesty International (2003), to the US Commission on International Religious Freedom Report (2004) criticized the Modi administration for its failure to quell the violence.

By June 2014, we will know how these cross currents play out.


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