Wednesday, March 7, 2012

ROAD AHEAD = Lessons from Elections = Economy & Stock Market in 2012


Lessons from Elections
Economy & Stock Market in 2012

Now that the Election Results are assimilated by India – what is the Road ahead for Indian Economy.

If UPA and BJP learn their lessons properly – the road ahead is very good for the Indian economy and for the  stock market.

UP goes from Mayavati to Mulayam. There is no change either for Congress or for BJP – except missed and muffled opportunities in UP.

Ø  Congress, it is obvious – will never win by wooing Muslims through Reservations. What it promises to Muslims has to be taken away someone else – and that some one need not feel obliged to vote for Congress, for taking away his bread and butter from him and giving it to the Muslims. Wooing specific castes and specific religions in Elections does not befit a party of the stature of Congress – which must aim for integrated development of all.

Ø  Reservations, per-se, imply mere distribution of Jobs – and not fresh creation of Jobs. Government is promising a small percentage of almost non-existing vacancies in Jobs  to Muslims, which any way, it has to take away from some others. The others who compete for those Jobs are not Rich. They come up the hard way after qualifying in secular Education. 

Ø  Secular Education : Muslims qualifying in secular Education are progressing very well. They are in Industry, trade, government and everywhere. Muslims who are not progressing are those who go for – religious or Madrasa Education. Therefore, the reservations are pointless. Muslims must be encouraged to take up secular education – for qualifying for jobs or other economic activity.

Ø  ANTI-CORRUPTION & BLACK MONEY AGITATIONS : The rough and crude handling of anti-corruption and Black-money agitations of Team Anna and Swami Ramdev – were Bad enough to earn Congress, huge negative marks all over the country. This time around - Team Anna and RamDev did not vociferously campaign against Congress – BUT future could be different. 

Ø  Lok Pal issue is actually one – on which Congress can easily take huge credit – by bringing a good Lok pal bill -  but, it seems bent upon doing the reverse.

Ø  BJP, on its part, will never win in UP in a big way as long as it keeps Ram Mandir on its Political Agenda. Ram Mandir can be a religious Agenda for VHP or Bhajarangdal. 

Ø  RAM MANDIR issue should never be on the Political agenda of a National Political party of the stature of BJP – especially when the issue is before Courts of law. RAM MANDIR issue  prevents BJP from winning many WINNABLE SEATS in all other states as well. 

Ø  Examples of Gujarat, Goa and Punjab : BJP is winning  well in Gujarat – where Modi has eschewed Non-secular Agenda totally. Ram Mandir is not an issue there. BJP has won well in Goa too - by projecting a Non-secular Image. Its partner in Punjab, the SAD projected a secular Image and took a huge chunk of Hindu + Sikh vote there. Unless BJP projects an equally secular Image, it can even become a non-entity in Punjab losing its votes, not to its opponents, but to its Partner, the SAD. BJP must learn these hard lessons which people are handing it over.

Ø  NON-VOTERS : In UP BJP also failed to get its traditional Vote Bank to vote for it in larger numbers. Over 40% of voters did not vote in UP. Though the number and percentage of voters who voted has increased from 2007 – it is still woefully below all other states which went to Polls. The Non-voters, I guess, come from middle classes, trader classes etc. It should be easier for BJP to target and get their votes – if only it projects a developmental manifesto beneficial for them. 

Ø  Uma Bharti can talk a lot – but does she talk of a developmental Manifesto – like Modi does in Gujarat? Neither Uma Bharti, nor any other state level leaders of BJP in UP projected any serious developmental Manifesto and Mindset of BJP – which is essential for winning people’s hearts and Votes. 

Ø  Arun Jaitley’s thinking that being third in the state is a big drag on getting more seats and votes is only partially correct. Both SP and BSP are winning on about 20% or less of the TOTAL VOTES AVAILABLE for voting. If BJP can get the non-voters more interested in voting for it – it can win head and shoulders above both SP and BSP. But, it must also project a Secular, developmental Image.

Ø  The same holds good for Congress. It projected a woefully non-secular image. It therefore lost all non-muslim votes.  Next time around, if it does not come up with a Good Lok Pal Bill, Team Anna and RamDev will be more than justified in campaigning actively against Congress on Corruption and Black Money Issues.

Ø  BSP lost – because, its vote Bank consists of a small section of society. Unlike last time, it did not project a broader image this time. Why should others vote for BSP, if they are to lose by such voting? Mayavati must reflect on this. If SP and BSP have won more seats than BJP and Congress – it is more because, 40 % of total voters failed to vote. If they had voted, both BJP and Congress would have benefitted in a Big way – and probably they would have been Number one and two.

Now- with these lessons before both BJP and Congress – let us look at Our economy and stock Market issues.

These Elections are almost non-issues for National economy. The new state Governments are not going to be worse than the old ones – in respect of economic issues. Mulayam Govt may be known for Goondaism earlier – but not for anti-industry stand. At National level too – on crucial developmental issues, with more floor co-ordination, important Bills can easily sail through. Congress needs some adjustability in these Bills. The Lok Pal Bill invited so much criticism because it was a BAD BILL – not satisfying any criteria which can make for an effective Lok Pal.

Land Acquisition Bill can pass through easily – if only it is presented in its more generous Draft form. Allow generous compensation to Land Owners – so that Land acquisition passes through easily in every future case. Else, in its present form, you may invite some more suicides and more ill-will from the farmers and other land owners whom you will deprive of their land (and their present livelihood) without reasonable compensation. This has not an iota of connection with election results.

So is the case with clearing expenditure on Infrastructure projects. Who prevents this? None. Allowing  more mining in forest areas (where ores exist) and creating more forests where no ores exist is also a simple decision. It is only UPA which has to take the decision.

Importing Gas for Gas based projects and quickening the pace of Gas exploration and commissioning of pending projects – is also a decision to be taken by UPA.ONGC is announcing so many gas / crude  findings – but how quickly will it exploit them –depends upon – making it partner with an efficient and experienced private sector company and allowing that company a free hand. Like Reliance did with BP.

Road Projects are also to be cleared faster – and watched for quick pace. Where Land acquisition is the problem – generous compensation is the solution. Government must adopt this stand.

2012 can be a great year – merely by taking these pending decisions immediately.

Next comes 2 important Economic Decisions. 

1.   INTEREST RATE REDUCTION : RBI raised the interest Rates almost every month in 2011 to tackle Inflation. Inflation did not respond to the raising interest rates for very obvious reasons. But, high interest Rates hurt many sectors of economy. When prices did come down, they came down because of more agricultural output – which has nothing to do with RBI interest rates. On the other hand, RBI’s high Interest Rates have brought down Manufacturing sector growth considerably. Liquidity crunch in the economy started hurting Growth very badly and RBI has done the right thing by easing CRR by 0.5%. It can ease it further too. But, easing CRR without reducing Interest rates puts our Manufacturing Industry at a huge disadvantage vis-à-vis Imports. This is happening. Chinese and other Imports are taking over our manufacturing industry gradually. RBI must study this aspect and roll back interest Rates sufficiently and urgently – before too much damage is done to the manufacturing Industry in India.

2.   BUDGET 2012 :  Revenue Growth did not match growing expenditure in 2011 – but the reasons lie squarely at the doors of Government and RBI. Neither of them were worried about Growth in 2011.Not a single decision was taken to spur growth. But, 2012 can see good, double digit growth with much less Inflation than 2011, if only both Government and RBI bat for Growth.

3.   PROMOTE LOCAL INDUSTRY : Government must take all possible measures to promote indigenous Industry – and make it more competitive and more efficient than the Chinese and Koreans. It must give indigenous Industry more tax sops and tax the imports more heavily.
4.   Ministry of Industry and Commerce : This Ministry must become a champion of modernization and innovation for Indian Industry – especially the SMEs. It must make 2012 a YEAR OF MODERNISATION & INNOVATION. Ultimate competitiveness and quality  in Indian Industry depends on these 2 key factors and the ministry must concentrate o this.

5.   Adequate tax benefits for R&D efforts in Indian Industry is essential to change the face of Indian Industry. State Governments must also tax foreign articles at higher rates than Indian articles and ensure that Indian articles retain their competitiveness. All taxation efforts must keep this in view.

6.   Air line sector is bleeding. Air India and King Fisher are both badly managed. But, other Airlines are also not in any great health. Taxes and the Rates for ATF in India are TOO HIGH and need to come down drastically. Without reducing these taxes, merely infusing more money into these Airlines will only prolong their Agony for a year two more. But, if taxes and fuel rates are drastically reduced making the Airlines healthy – what Governments may lose in taxes and Fuel rates will come back to them – as these Airlines become healthier, improve their seat occupancy, their revenues and profits. Central Government should reduce its rates and taxes. It must also impress on state Governments to reduce their taxes in Air lines.

7.   Telecom is another sector which can go the way of the Airlines. MTNL and BSNL are already bleeding. None of the Telecom companies are making sufficient money to induce them to invest further in India. There is obvious flight of capital from India to other countries in this sector. As Government has said in its review Petition before Supreme Court, Pure auction can not be the route always for all public services. Long term public good must be kept in mind. First come, first served principle – irrespective of the credentials of the suitors, as was done by Shri A. Raja, is of course, bad at law. Government must have the choice – to choose all the existing operators plus a few experienced operators from outside. State-wise licences are now unnecessary. All operators must roll out services in all states. This implies that – overall we cannot and need not have more than eight operators at the maximum in India – with all of them rolling out services all over India. Choose the Best and reject the rest.

8.   Shri Pranab Mukherjee, our FM,  need not unnecessarily worry about Revenues slowing down in coming year. They have slowed down in 2011 because of the High Interest Rate regime of RBI and the consequent slowing down of Growth of Industry. In 2012, situation will improve if the FM impresses on RBI to roll back interest Rates by 2-2.5% immediately. Growth will pick up quickly and more tax revenues will start flowing in  at a greater speed. Contrary to what Government and RBI thought – RBI’s interest Rate Regime in 2011 slowed down Growth, resulted in less revenues, which in turn resulted in More deficit financing, which in turn has become the cause of Inflation. The Medicine for Inflation has become the cause of Inflation. Now, reduce Interest rates and see the reverse happening.

9.   Shri Manmohan Singh : Our PM, when he takes initiative, leads in right direction. Now, when individual ministers show some sluggishness in acting, PM must intervene more actively and in time – to move matters. Land acquisition Bill need not have been pending for so long. When it comes up, it need not come up in a form which will be unhelpful  and unsympathetic to Land owners. These are Bills where there need not be any differences between opposition and Government. So are other roadblocks for most economic bills. I will not call FDI in retail a reform Bill. As of today, India retailers will be badly affected – and all the so called benefits to farmers cannot neutralize the impact on retailers. Also, when one looks at the No,.1 retailer, the Walmart, we don’t see where Walmart has helped farmers the way Government is touting. PM needs to promote and fast-track growth in all sectors. FDI will flow in automatically.

10.                STOCK MARKET :-With Government acting on some of the pending bills and RBI acting for Growth, stock market is bound to pick up impressively in 2012. There may be more heated Political debates in Parliament. They notwithstanding, economy will improve anyway – and company performances will improve impressively in 2012. The sluggishness of UPA will go – and it will strive to perform well. So, in my opinion, Great days are ahead for stock Market too in 2012.

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