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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