KOLKATA
- The suspense is finally over. After the endless rounds
of opinion polls and exit polls with all their varied
predictions of "swings" and "shifts", India has declared
its most unexpected verdict: the Bharatiya Janata
Party-led right wing National Democratic Alliance (NDA)
government has been routed out of power, and the
majority of India's electorate that is seemingly
untouched by the NDA's high-energy technology-oriented
reforms has voted the "secular" Congress with its allies
back into reckoning.
But while it is clear that
the pro-reform Congress is set to form the next
government, with a marked leftist tilt - since Left
parties will have the third largest hand in the 14th
parliament of India - the initial scare of the exit of
the NDA government derailing reforms is giving way to
the realization that the Congress, being the original
reformer, will keep India's economy and reforms on
course.
"The Congress party is hardly a newcomer
to economic reform: under the guiding hand of erstwhile
finance minister Manmohan Singh, it was the party which
initiated the first wave of reforms in the aftermath of
the balance of payments crisis of the early 1990s," said
international ratings agency Fitch Ratings, while
Moody's Investor Service's Kristine Lindow felt that the
Congress-Left fusion government could only cause a
temporary setback. According to Moody's, there could be
a lull as the new government regroups, but "in the end
the Congress will put their stamp on reforms because
they see that such efforts pay off in faster growth".
And although a certain amount of fear still remains
concerning economic policies, the new government in
India will most likely supplement the reforms already
under way rather than supersede them.
However,
it is also certain that post-poll - the Left parties
which have managed to bag 63 seats in the 543-seat
parliament and which have agreed to support a
Congress-led government - much of India's economic
policies will be dictated by the motto which the Left
calls "an advancing economy with a human touch".
In fact the Left Front - comprising parties like
the Communist Party of India, the Communist Party of
India Marxist, Forward Block and the Revolutionary
Socialist Party, that has swept the India states of
Kerala, Tripura and West Bengal - is already seeking a
document on a common minimum program from the Congress.
For the uninitiated, the Left line is best
explained by West Bengal chief minister Budhhadev
Bhattacharya's - a leftist leader - recent statement:
"For us a good potato crop is as important as
investments by Wipro and Pepsi. But out first priority
is to back a secular government. Yes, we have serious
differences with the Congress government on economic
policies, but we will sort out the differences and back
reforms that we feel are right at the national level."
However, there will have to be some changes in
reforms, particularly in areas of divestment and
openness to foreign investment. Going by the public
utterances of the Congress and its major ally the Left,
divestments of "profitable state-owned companies" such
as HPCL, BPCL, Nalco or even the Shipping Corporation of
India and Engineers India, will be the first to go off
the new government's list. This will also mean that the
transactions that are half done or almost in the final
lap would have to be scrapped. But this does not mean
that losing state-level companies will not be divested,
if earlier developments in West Bengal are to be taken
as any precedent. The state government had put up 10
state-level companies for divestment last year. And
significantly, as says the Congress manifesto,
"divestments will not be resorted to merely to raise
revenue to meet short-term targets, as the NDA has been
doing, but will be used for designated social
development programs. And more importantly, that it will
ensure disinvestment increases competition and consumer
welfare."
The NDA's ouster from power may also
slow down the liberalization of foreign direct
investment (FDI) in key areas such as civil aviation,
media and retail, since the Left is known to be averse
to allowing foreigners to play a role in these "crucial
sectors". But there would be no major rollback of the
earlier FDI liberalizations, as assured the spokesperson
of the Communist Party of India - Marxist, Somnath
Chatterjee, while certain areas like FDI in insurance
and telecom "which are among the priorities" could be
raised from the current levels.
The widespread
belief is that the new Congress-led government will
address the economic spectrum by focusing on three major
areas; one, achieve 8 to 10 percent growth and spread
this to other sectors, particularly agriculture and
industry. Two, improve the domestic fiscal mess by
containing the fiscal deficit and eliminating revenue
deficit on a long-term basis. And finally, create
employment in the organized sector to take the economy
out of an era of jobless growth. "The focus will also be
on increasing public investment in agriculture, which
will spur private investment. And we need to create
jobs. We cannot have jobless growth as we have had in
the last five years," said Jairam Ramesh, a senior
member of the Congress' economic think-tank.
And
if there's one sector that is not anticipating any
reversal in the reform process it is information
technology (IT). Whatever had to be done to pep up the
IT industry has been done, they say, and no government
can afford to ignore it. "We are confident that
whichever party comes to power, the process of reforms
will continue. The Indian economy is poised for growth
and we are sure that this will be endorsed by whoever
forms the government," said Nandan Nilekani, Infosys
Technologies' CEO.
Nevertheless, even if there
is a general sense of optimism among India's corporate
chieftains and international agencies, the country's
money markets seem to be have been rattled by the
possibility of the new government treading easy on
divestments and the fact that the Left parties would be
the Congress' major ally.
Even as the stock
markets tried hard to recoil from the sudden departure
of the old guard on Thursday by rising by 256 points
after a three-day fall, indices tanked Friday by falling
about 300 points, which according to market watchers was
the biggest fall in a day in six years. The rupee, which
has been gaining against the dollar relentlessly over
the past three years, lost by 72 paisa as companies and
importers embarked on a dollar-accumulating spree,
fearing a further rise of the dollar as a result of a
weak federal coalition.
However, experts feel
that this reaction is natural and markets will
eventually return to their earlier state of bullishness.
"The markets were really sorry to see the last
government go," said Ashok Desai, the former economic
advisor to the Congress government and now a noted
journalist. "This reaction is more of a farewell rather
than a welcome. But soon there will be a welcome as the
economy is very strong and all those [read foreign
institutional investors and punters] who have made pots
of money by selling out today will come back when the
stock markets will provide them an opportunity to make
more money in about three months."
Admittedly,
the Indian economy is strong. Perhaps stronger than it
has ever been in the past five decades, which is why
some international experts believe that even if the new
government did absolutely nothing, there would be no
major negative impact. "I don't think it's essential to
continue reforms rapidly," said Martin Hutchinson,
business and economics editor of the Washington-based
news agency United Press International and an expert on
emerging markets. "The reforms that have already
happened, plus momentum in the economy, will carry
things forward quite a lot just by the passage of time.
So in a sense a government that did absolutely nothing,
but kept public spending under control and allowed
economic growth to whittle down the public sector
deficit, would be very close to the best possible
outcome," he says.
(Copyright 2004 Asia Times
Online Ltd. All rights reserved. Please contact content@atimes.com for
information on our sales and syndication policies.)
