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| BW OPINION |
| Not a bad outcome |
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Maharashtra is still
by far India's richest state, although in recent
times it has fallen behind Karnataka and Tamil Nadu
in the growth race. Winning it brings access to
considerable resources for parties in our imperfect
democracy. It was also the first of the four states
to go to polls this winter, and was expected to
set the trend for the rest. That is why the elections
in Maharashtra evoked such intense and widespread
interest. The economic policies of the two dominant
coalitions that have come to dominate the Indian
polity now diverge considerably, so industrialists
and financial institutions would have also watched
the elections with much interest and some trepidation.
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| The clouds
that descended on the economy
with the win of the UPA are lifting;
the way is clear for the boom
to continue |
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Its outcome is with us, and its implications are
obvious. The BJP had done poorly in the state elections
that followed the general elections of 1999. This
trend was spectacularly reversed in last year's
elections, when the BJP wrested three central states
- Rajasthan, Madhya Pradesh and Chhattisgarh - from
the Congress. After those convincing wins, the BJP's
setback in this year's general elections came as
a surprise. India, in effect, returned to the populist
Leftism of Mrs Indira Gandhi's early years. That
is what worried India's industrialists, and cast
a shadow on shining India.
In the circumstances, industry may have hoped for
a victory of the BJP-Shiv Sena alliance both because
the NDA was so friendly to the private sector, and
in the hope that a more powerful Opposition might
curb the UPA's left extremism. Those that held such
hopes must be disappointed. But the disappointment
must be tempered by the fact that the BJP had been
unhinged by its defeat in the general election.
It has teetered between development and Hindu extremism,
boycotted Parliament, gone out on the streets, and
shown signs of internecine fighting. It did not
seem to be the same capitalist-friendly party that
it had been while in power; and it was allied with
Shiv Sena, which was always bad news for stability
and peace.
The Congress has learnt its lessons too. The finance
minister devoted considerable energies to convincing
industry that the UPA's fangs were not for biting.
The Left, too, had a surprise for the private sector:
whether on foreign investment in telecommunications
or on Press Note 18, the communists have turned
into unexpected allies of domestic capitalists.
The UPA has begun to look almost benign with the
passage of time
The win of the Congress-NCP alliance also resumes
the trend of the past five years that was broken
by last year's state elections. The tide seems to
be running against the BJP. It may not run in favour
of the Congress either.
But the Congress is still earning dividends on its
new alliances, which give it some momentum.
It is therefore possible that Maharashtra may herald
a Congress era just as the 1999 general elections
heralded a BJP era. This has its depressing side,
as portrayed in the Common Minimum Programme. But
it also promises an era of stability; and if the
Congress reads the portents correctly, it promises
a period in which the Congress can forge its policies
without worrying too much about politics. And if
we forget the Damocles' sword of caste reservations
in the private sector, the policies could be as
industry-friendly as those of the NDA. The improved
quality of leadership at the top also means that
they may be better thought out.
With the reduced political risks, economic worries
come back to the fore. Specifically, analysts have
been worried on three counts. First, they see a
substantial domestic and industrial element in the
recent inflation, and are concerned that the economy
is overheating. Second, stemming from this worry,
they wonder if the Reserve Bank will try to rein
in inflation and raise interest rates. Finally,
they note the fall in foreign investment with the
coming of the UPA government, and wonder if rising
imports will begin to erode the foreign exchange
reserves.
The government is aware of the last danger; that
is why Mr P. Chidambaram has chosen to take up cudgels
with the Left on foreign investment in telecommunications.
Foreign investment is one issue on which the Prime
Minister is prepared to confront his Leftist allies.
Some hardening of interest rates was inevitable
once the Reserve Bank ended its ill-conceived flirtation
with rupee appreciation. But it has occurred already;
it is doubtful if the government will attempt any
more, given its own huge debt. The Prime Minister's
sensitivity to inflation is well known. But the
government is unlikely to try and curb it by fiscal
means. That leaves only one weapon, namely, import
duty cuts, which will actually reduce industry costs.
Hence, it is time for industry to stop worrying.
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