India Focus

S t r a t e g i c    A n a l y s i s    &    F o r e c a s t s

Vol 4, No 4                                                                                                                                                                                       November 1999


Politics    •    Business        Economy    •    Society        Culture    •    Diplomacy


Summary

  • The new NDA government will be in power at least for 2 years, but there will be periods of tension with allies. Within this period, there is also a high probability of high-level changes in both the government and in the personal equations between key personalities.

  • The BJP is much more ‘national’ in character, and except Kerala all other states have voted BJP candidates to the Parliament. Its reduced dependence on UP is a positive development in making the BJP a more centrist party.

  • These elections have reduced the influence/leverage of many reactionary and divisive elements in India politics -- Shiv Sena, AIADMK, Laloo Yadav, Vaghela, Kalyan Singh, Subramanium Swamy -- and this is perhaps the best news for foreign investors. Irrespective of regime stability, government policy in economic and diplomatic areas will now be conducted with more care and less knee-jerk reaction.

  • However, serious problems do remain. These include a volatile socialist lobby in the government, an unwieldy and inexperienced Council of Ministers, new parliamentary committees to oversee key economic legislation, lack of a genuine reformist conviction among BJP parliamentarians, and the possible lack of Congress cooperation in the Upper House.

Likely Developments in Economic Areas:

  • Insurance: IRA bill will very likely be passed before President Clinton’s visit to India in February, but the actual setting up of IRDA and industry rules will take much longer than is currently being expected by MNCs.

  • Aviation: Nothing substantial is expected. The new minister, Sharad Yadav, is a old-fashioned socialist who neither understands the new global economy nor is interested in it. Privatization of domestic airlines, construction of new airports and entry to foreign airlines is very unlikely in the medium term.

  • Mining: Another area which will be put on the back-burner. There are too many interests and lobbies at the state level, and major mineral states (such as Bihar, Karnataka, Rajasthan and MP) are all ruled by non-BJP opposition parties.

  • Petroleum: The new minister, Ram Naik, though very honest, is not a dynamic go-getter who is willing to take bold initiatives. He is a good ‘foot soldier’ who will willingly follow any instruction from the top, which means that any significant changes in policy will depends on the Prime Minister and the PMO. There is high probability that exploration contracts for oil/gas will be started again, but privatization of Indian Oil Corporation will not happen for some time. Overall, this sector will slowly witness positive news for foreign majors, but do not expect dramatic action.

  • Power: The shift of national policy focus from generation to T&D, a state-level activity, is bad news for foreign investors in the short term. The immediate period will see many half-baked ideas, measures and attempts to improve the functioning of local SEBs, but these are unlikely to work unless the PM himself takes an initiative in getting opposition-run state governments to agree to an end to their fiscal largesse to subsidized power consumers. Given the fact that assembly polls in major states are close, any political consensus on reforms in this area is unlikely despite much noise in the press.

  • Overall: Despite repeated promises of ‘Reforms: Phase II,’ the current regime will be constrained in many key areas, such as in reducing consumer/agricultural subsidies, allowing imports in agriculture or textiles, easing the complexity of regulations in vital infrastructure areas, or creating a more transparent government. Senior BJP leaders are very keen to ensure a successful Clinton visit, and in the short term will be guided by a desire to please US lobby groups. There will be some relaxation of entry laws for MNCs, and also forward movement in privatization and labour laws. Insurance, Telecom and Broadcasting will witness some initiatives, but other areas will stay unclear (and perhaps stagnant) in the short term due to inherent political necessities. Business conditions will guardedly improve in a few select areas, but MNCs should not have high expectations of dramatic changes as being suggested by the Indian media.


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India Focus is a private-circulation report for senior international executives, bankers and diplomats, and is issued six times a year. Reproduction in any form is strictly prohibited. It is published by Business Foundations, a political risk consultancy which advises foreign investors on political scenarios, business trends, social changes, economic outlook, investment conditions and other high-level issues which may affect Indian business plans and strategy. To subscribe to India Focus or to know more about us, contact us via phone, fax or email. Or else, visit us at our website:

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