India Economic Reform: After Congress Landslide Victory, Real Reform Likely

Mumbai, 18 May 2009. We were hanging our breath, so to speak, fearing a hung Lok Sabha (parliament). Instead we got that most surprising of outcomes (in India at least): a landslide in favour of a ruling party. Expect to see the Sensex rally sort-term (after all, Dalal Street loves certainty), and economic reforms to pick up pace during the next 5 years.[br]

Pundits had said it was likely to be a hung parliament. There were even fears that both the Congress and the BJP would be too weak to form strong governments, leading to a Left Wing led coalition or some kind of grand coalition with both parties. Those outcomes would have hobbled decision-making in India, and probably depressed real growth prospects.

So strong was this sense, that many big-time players on Dalal Street had gone short writing call options, buying puts and even building naked futures positions. They are going to have a pretty Blue Monday (for some, no doubt, a Black & Blue Monday).

The United Progressive Alliance or UPA, led by Congress, has picked up 262 seats in the Lok Sabha. It needs just 10 more allies to get a 272 majority, but is probably going to aim for more partners to secure a numerical cushion so that no one minority party can derail a vote. Expect to see a coalition wielding about 300 votes in total. The language will talk of the ‘pre-poll alliance partners’, those partners who were in it even when UPA’s prospects looked quite dim. They will get priority attention and favouritism as government posts are dished out. [br]

There are some not-so-allied-allies that had been critising Congress, and now want to emphasise that they are still best of friends. This is particularly true of the Samajwadi Party (SP). Many in Congress are publicly calling for the SP to be shown the door.

Why did Congress Do So Well?

Prime Minister Manmohan Singh has publicly laid all the praise at the feet of Sonia and Rahul Gandhi. They certainly do command popularity, and Rahul has helped to increase the youth vote. But PM Singh is also personally a big part of the triumph.

People complain that he is boring and soft. While the first point might be true, it is seen by most people as a plus. We have grown sick of corrupt, egotistical and short-sighted politicians. We like the fact that Manmohan Singh puts India and his party first. We like the cleanliness and technical efficiency of his politicians.

He has already proved that when needed, he can be tough. He went against his then allies to push through the controversial nuclear pact with the US. Those leftist allies tried to bring down his government and almost succeeded, but EconomyWatch.com argued at the time that history would see this as a crucial milestone for India, and we believe that this has just been emphatically proven.

Indian Economic Reform Prospects

Just as important as the personalites though, are the policies. Indian’s as a whole may be deeply religious, but they value a secular political system that is tolerant and committed to improving their lives and economic prospects. Congress now represents economic reform more than any other party.

While still feeling left behind, rural voters, who make up 70 per cent of the electorate, have appreciated at least some level of help in recent years, and expect to see more from this government. Expect to see an emphasis on rural infrastructure development and financial help.

In general, and despite some of the protectionist sentiment that has been part of the electioneering slogans (sloganeering?), you will see more pronounced policies and programs that will channel more funds to infrastructure and education, attempts to reduce red tape and corruption, and more encouragement for entrepreneurs and foreign investors.

You will also see strong developments in energy policy. The push to make the US nuclear pact a reality will be a priority, as will moves to renewable energy sources such as solar power.

In short, expect a newly embolded Congress and UPA to push economic reform programs across the board.

Dalal Street & the Sensex React

There will be an immediate rally. At the opening of the market, beleaguered Dalal Street short sellers will scramble to cover their positions. Bullish long positions will also be taken up, and the Sensex will have a big one day rally.

That optimism will continue as foreign funds, who have stayed away from India thanks to the uncertainty, will now re-balance their portfolios to include sizeable chunks that buy into the India Economic Reform story.

Pundits expect a rally right up to the State of the Union address and the Budget announcement, with predictions ranging from 1,200 – 1,400 points.

The Gandhi Sideshow: A Tale of 2 Bahus, 4 Gandhi’s and a Split Dynasty

There are now more Gandhi’s in the Lok Sabha than ever before – 4 in total. To make it even more Shakespearean, they are on different sides of the side.

Riding triumphant are Congress President Sonia Gandhi and son Rahul, who played a big role in rallying the youth and who is being groomed for Prime Minstership.

Staring glumly at them from the opposition BJP benches are Maneka Gandhi, Sonia’s sister-in-law and her son Varun, whose fame turned to infamy with some inflammatory anti-Muslim remarks.

Expect that story to run and run too, although we are more interested in where India’s economic reform runs to in the next 5 years, and what that does for the Indian Economy as a whole.

Dwayne Ramakrishnan, EconomyWatch.com