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Sourajit Aiyer - www.MarketMoving.Info, UK - Is Narendra Modi the Best Choice for PM of India - Nov 2013, Article 1

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    Sourajit Aiyer - www.MarketMoving.Info, UK - Is Narendra Modi the Best Choice for PM of India - Nov 2013, Article 1 Sourajit Aiyer - www.MarketMoving.Info, UK - Is Narendra Modi the Best Choice for PM of India - Nov 2013, Article 1 Document Transcript

    • Market Moving News and Views What moves stock prices, bonds, currencies and commodities. News and commentary. Is Narendra Modi the Best Choice for Future Prime Minister of India? By Sourajit Aiyer India is gearing up for Elections and Narendrabhai Modi – the candidate for the position of Prime Minister for the centre-right National Democratic Alliance (NDA), led by the Bharatiya Janata Party (BJP) – has churned up public euphoria. Investors appreciate his pro-business image, given a stellar report card earned as Gujarat‟s Chief Minister. Given the UPA coalition‟s performance in its second tenure since 2009, anti-incumbency sentiment is also playing a role. Some view Modi as the Messiah who can lift this economy from its current lows. However, there are also sections who perceive his candidature for PM with scepticism. While there is a fundamental basis why Modi seems to be the best PM choice for this economy, sentiment-driven supporters should also realize there are some India-level challenges due to which he might not turn out to be the best choice at the national-level. Three reasons why he might be the perfect PM choice for this economy: Delivered on the commerce front Gujarat‟s achievements are visible: roads, 24X7 power, lower power thefts, factories, drinking water etc. He has welcomed big businesses to invest, and ensured smooth onboarding for their projects. This appeals to India Inc. Given India‟s sheer size, it needs to grow at a reasonable rate just to sustain its momentum, forget becoming an economic superpower. UPA‟s tenure, marked by scandals and corruption, dealt a blow to the Indian growth engine. Development targets are largely underachieved. FDI inflows, which India sorely needs to increase production and services capacities, have shrunk. This can help create good jobs and expand the middleclass – a priority for expanding its consumer base for businesses. If it were possible for domestic companies to create those capacities themselves, it would already have been done. Policy logjam and slowdown in decision making by government agencies have been thorny issues and Modi‟s pro-business image gives a positive vibe for the future. Initiative, acumen and go-getter attitude These are qualities for which corporates rate their managers highly in KPI (key performance indicators) performance appraisals. Eliciting interest from big businesses via Vibrant Gujarat summit, or “within-hours” fast turnaround to rope in the Tata Nano project after its Singur debacle are results of a definite vision and project planning capabilities for mutual benefit.
    • Alleged tax exemptions to bring in the Tata project raised criticism for possible revenue loss for the state, but Reserve Bank of India (RBI) data shows Gujarat‟s fiscal situation is managed within limits. Attracting big businesses sets the right tone for job creation, ancillary industries, resource mobilization and a business-friendly image for future projects. US President Obama himself was vying on similar lines for US businesses during his address at the recent SelectUSA summit. In short, Modi has shown he can move fast and move at the right time to attract business opportunities. Rides the anti-incumbency wave Given the strength of the above factors, Modi‟s candidature has captured a significant anti-incumbency wave. This may just give BJP a larger share of votes to ensure lower dependence on singular coalition partners for ensuring majority in Parliament. Lower chances of arm-twisting tactics by coalition partners who want their own benefits before the nation‟s benefits might give some elbow-room to the BJP to get key proposals passed in the Parliament. For a change, there might be more work getting done during the Parliamentary sessions in case there is an advantage of vote numbers, something business houses would happily welcome. Three challenges showing why he might not really turn out to be the perfect PM choice at national level: Experience in handling opposing forces Coalition politics is here to stay, and an opposing stance from partners can throw a spanner in the works of getting key proposals passed in Parliament. Manmohan Singh knows this well. UPA also had ambitious plans, but coalition-brinksmanship made actual execution slow and uncertain – a reason for the business community‟s apathy. Even NDA might face this. Expectations are that Modi can put plans into actions swiftly and achieve results fast. Did Modi face the challenge of coalition-brinksmanship in Gujarat, or is he untested in this? An India Today-Nielsen survey expected UPA to lose about 100 seats in Parliament this time, with NDA gaining only half of this. Would national-level BJP leaders like Arun Jaitley or Sushma Swaraj have been better choices then? Secondly, activism by NDA opposition members also slowed down the UPA‟s execution rate. If the tables are turned now, it is hard to believe that UPA opposition members would not engage in activism in their turn, delaying NDA‟s projects. Given the profile of opposition Modi faced in Gujarat, the question is: is he adequately experienced to deal with vociferous multi-party opposition activism? Lastly, the critical aspect is that of equitable and inclusive growth across India. Why is this important for the business community? It unleashes India‟s demand potential as it broadens the consumer base, ensures income growth across the society, raises scope for discretionary spending and creates new markets. Realizing this demand potential of India is what attracts global and domestic businesses – be it in consumer durables, FMCG, autos, BFSI, organized retail, telecom, media, housing, pharma, education etc. In order to circumvent possible opposition he might face from State governments and meet expectations of speedier implementation, will there be a tendency to tilt projects towards states governed by BJP/NDA parties? If so, then the economy will remain skewed in its distribution of economic opportunities and income. India‟s Gini coefficient lags peers. Continued labour migrations will put further pressure on unplanned urban clusters. Land and housing prices in those states will shoot up and ultimately become unaffordable – already a reality in many metro-cities.
    • Traits of the Gujaratis Let us recall what characterizes this community. Gujaratis have traditionally been enterprising and moneyed – the owners of capital. They are commercially-minded, something not many Indian communities are known for. Take Singur‟s example in West Bengal. Political bickering tactics by the then Opposition took precedence over the project‟s economic benefits, and a key project was lost. This has subsequently deterred investments, as evinced by the large-scale migration of its skilled and unskilled labour. Conversely, the Gujarati‟s mentality is to appraise commercial opportunities in terms of economic benefits, rather than pay heed to politicians‟ bickering over land acquisition matters. This makes the job of its Chief Minister easier as he just needs to ensure business-friendly policies. Its people have capabilities and a ready-mindset to capitalize on the opportunities. As the old adage goes – you can lead a horse to water but you can‟t make it drink. Not only small businesses, even big businessmen like Ambani/Adani who invested recently are from the Gujarati community. Had Modi been the Chief Minister of West Bengal or a similar-profiled state instead of Gujarat, would he still have achieved a stellar report card? Given the objective of ensuring growth opportunities across India, this systematic challenge at the national-level would test Modi. “Implemented” achievements and needs of the broader society Vibrant Gujarat attracted big businesses. However, some media reports say only a small proportion of commitments actually moved on the ground. These might be baseless, however one article complained that its website didn‟t have adequate details. Given this was the best barometer of success, „implementations‟ should be in bold/underline/italics! Maybe the website is updated now. Secondly, was he the only mega-achiever among Chief Ministers? 10-year CAGR in net domestic product shows Maharashtra, Delhi, Tamil Nadu, Haryana did just as well – even bettering Gujarat in some cases. Rajasthan and Bihar bettered Gujarat in the Industrial sector in last four years. Rajasthan, Bihar and MP beat it in Agriculture, while Bihar, Haryana, Maharshtra and MP beat it in Services. Rajasthan, Maharshtra, Andhra, Haryana, Punjab, Tamil Nadu achieved a higher percentage in the reduction of the number of people below the poverty level in the last seven years. The World Bank‟s report ranked Jaipur, Bhubaneshwar, Ludhiana, Hyderabad ahead of Ahmedabad in ease of doing business. Would Vasundhara [Raje, former Chief Minister of Rajasthan] or Patnaik [Naveen, Odisha Chief Minister] have been better choices? Gujarat‟s infrastructure achievements are praiseworthy. But India has seen major challenges in managing local politics, officials and crime in implementing the PPP [public-private partnership] model in infrastructure, and most government commissioning agencies cannot afford the EPC [engineering, procurement and construction] model. Is his Gujarat experience sufficient in overcoming these systematic challenges for across-India infrastructure development? Lastly, politics is not just about commerce. India‟s economic story has touched only few sections of society, and the government needs to address those left out. They need to enact high-expenditure plans for the broader society, which may sometimes go against fiscal prudence. But such plans are needed in developing countries for equitable and inclusive development – like UPA‟s food and employment plans. India still ranks low in the IFPRI Global Hunger Index, UNICEF‟s children malnutrition ranking and the UN‟s HDI index. This makes a natural case for such plans by national-level governments. Many Indian states lag Gujarat in social indices and India‟s fiscal situation is weak, hence such plans might slow Modi‟s achievements at national-level. Supporters should be prepared to accept such instances. However, an improved social infrastructure bodes well for corporates‟ “India-opportunity”. Equitable growth might reduce incidents of crime by elements who now feel left out from India‟s economic benefits. Less crime would enhance India‟s image globally.
    • Modi‟s report card in 2018 (assuming he wins) is based on how he addresses these challenges. Maybe he already has strategies in place. The campaign speeches seem to largely center on lambasting the current PM‟s underperformance. In conclusion, there is a strong fundamental basis for Modi‟s case given his managerial qualities and achievements in Gujarat, and this article appreciates his capabilities and abilities. The purpose of this article is only to remind sentiment-driven adulating fans of the challenges he might face at India-level in achieving similar success, given the expectations they have pinned on him. For India‟s equitable and inclusive growth, let us hope he can overcome these challenges and yield a better deal for Indians and the global community. This entry was posted in Views and tagged election, emerging markets, guest blog, India, Narendrabhai Modi, Prime Minister on November 10, 2013 by Antonia Oprita. Sourajit Aiyer is a finance professional currently based in Mumbai. Views expressed are entirely personal and not representative of any entity. Read also: Asia’s final frontier in investment: Bhutan