Apart from the stunning defeat of the Congress party in 3 of the 4 states, the spectacular debut of the Aam Aadmi Party (AAP) that won 28 of Delhi?s 70 assembly seats will force political parties to relook their future strategies. While barriers to entry remain high in Indian politics, a rank newcomer doing so well should get the BJP especially, given its urban bias, to think of the consequences of an AAP extending to more urban centres. The other big lessons of the ?mini? elections are that economic governance is at a premium and voters can?t be won over by freebies alone. With over R5,000 crore from Cairn India each year by way of royalties from Barmer oil as compared to R100 crore five years ago, Ashok Gehlot?s government had a lot more to spend on freebies, but lost decisively. Though stock markets will project yesterday?s assembly results on to next year?s elections?BJP holds just 28 of the 72 Lok Sabha seats in these states?keep in mind the BJP has swept these states before in the assemblies and then lost them in the national elections; also, how well the BJP does in the national elections largely depends on how it does in Bihar and Uttar Pradesh.
While anti-incumbency and corruption perception were big factors, by and large parties that delivered on growth were voted back to power. As against the national average of 5% in FY13, Madhya Pradesh?s (MP) GDP growth was more than double at 10% and, while not as impressive, Chhattisgarh was 8.6%. Rajasthan?s data is available only for FY12 and for that year, it grew at less than the national average?MP, by contrast, grew at 11.8% versus the national 6.2% and Chhattisgarh grew at 8.1%. At over 9% for several years, Delhi grew faster than the national average, but given the apathy towards the central government also rubbed off on the Delhi government, the anti-incumbency was too strong to counter. Even more revealing was the agriculture performance which matters more for jobs creation. While agriculture grew by 1.7% at the national level in FY13, it grew 14.3% in Madhya Pradesh and 5.3% in Chhattisgarh. Related to this is the issue of freebies. While ?chawal baba? Raman Singh in Chhattisgarh is the progenitor of the Food Security Act with his heavily subsidised foodgrain, voters plumped for him in large numbers but deserted Ashok Gehlot who also showered freebies on the electorate?if not accompanied by economic growth, freebies don?t go down well. To put this in perspective, while a month?s subsidies under the Food Security Act add up to at best R500 per family, were the government to stimulate growth, this is under two days wages for voters.
Investors would also do well to keep in mind that while stock markets may rally in the hope of a particular candidate coming to power, no party coming to power changes the direction of the market in anything other than the very short run. And with good reason. While it can be argued that investors will start announcing new projects once they are convinced the government is going to push projects, with large swathes of India Inc vastly over-leveraged, industry is not going to find it easy to either raise equity or debt required immediately. Big reforms on GST or on privatising the coal sector, for instance, will all require political parties to work together?exactly the same kind of support the UPA is not finding it possible to put together right now.
