How the outcome of the UP elections could influence the course of India's economic reforms
In 1939 noted British economist Roy Harrod caught the imagination of economists across the world and kick started the thinking on modern theory of growth when he first used the compelling imagery of a ‘knife’s edge’ to explain how economies may falter in achieving optimal growth if they failed to tread a specific path. While Harrod’s model was challenged later, the imagery has endured in the minds of most economists.
Perhaps that is the reason why India’s beleaguered economist-Prime Minister Manmohan Singh gave an unusually stern message to industry leaders, asking them to pipe down the ever increasing voices of discontent against his government “until March [2012].” This was in the third week of December, just days before elections were declared in five states—electorally amounting to almost one-fourth of India.
For the better part of the past two years, Singh has failed to push the economic reforms agenda. It is the toughest phase for him since even his core constituency—industry leaders, people who actualised Singh’s policies and posted the now enviable growth figures—have turned hostile. Inability to enact reforms in the retail, pension and insurance sectors among others, has robbed Singh of his only support base. The curt message along with the promise to deliver results after the state polls looked more like the last roll of the dice by Singh.
The elephant in the room, so to speak, is Uttar Pradesh. It is the biggest state that alone sends 80 representatives to the 544-strong Lok Sabha. UP has enough seats to give the ruling UPA a majority in the Rajya Sabha. Moreover, Congress’s future leader and possibly Manmohan Singh’s heir, Rahul Gandhi has put his full political weight behind winning the state, which was until two decades ago, Congress’s stronghold.
A good showing in UP would also have a salutary effect on the credibility of Singh’s government which has been on the brink of being ousted ever since the 2G spectrum scam broke in 2010. For a while now, Singh has been fighting fire on all fronts—erring ministers, opportunistic allies, stubborn Opposition, questioning civil society and a bloodthirsty media. Almost as a result of the stalled decision making, Singh’s grip on the economy has weakened and economic variables like inflation, growth and currency are running amuck. He hopes state election victories would indicate his government enjoys the people’s confidence. That is why UP is so crucial to the Indian economy in general and investors in particular. The elections provide Singh with that critical ‘knife’s edge’ path which he and his party must tread to avoid a political collapse.
Ajay Rai wraps his shawl tight around his shoulders as if to restrain the power that exudes from him within its woollen folds. He listens intently as a man tells him how the body of his son who had died earlier had not been released from the hospital for several hours. He shakes his bald head, then picks up one of the two mobile phones lying on the table in front of him and talks briefly. Done, he tells the man. He can go to the hospital and take the body. The man touches Rai’s feet gratefully and shuffles away.
Ajay Rai is the Congress Party’s candidate from Pindara constituency abutting Varanasi, the oldest continuously lived human settlement in the world and one of the holiest for Hindus. This is the Bharatiya Janata Party’s stronghold, but Congress is sure to win Pindara in the upcoming elections, many people there say. Rai has won Kolasla, as his constituency was known before delimitation, three times for the BJP. In 2009, he quit the party over differences with Murli Manohar Joshi and contested the elections against him on a Samajwadi Party ticket, giving the top BJP leader some nervous moments until the last votes were counted. He has now joined the Congress on an invitation from Rahul Gandhi. Many, including his rivals, say that he wins on his own steam because of his excellent rapport with the public. It also helps that he is what people here call a bahubali—strongman.
The UP election will test the mettle of many leaders but none more than Congress general secretary Rahul Gandhi’s. Many see UP as the rite of passage for the Gandhi scion before staking his claim to run the country. After remaining out of power in the state for 22 long years, the party hopes to make a comeback. A good show would breathe fresh life into the government at the Centre which has been half paralysed by Anna Hazare’s onslaught and brittle confidence in Parliament. It may not win a majority by itself, but hopes to get at least 100 seats, five times its current strength. A 70-100 seats tally would be seen as a victory for Gandhi who has relentlessly focussed for more than two years on a state where party organisation is virtually non-existent. Gandhi has travelled wide and deep into remote hamlets and visited Dalit households on people contact programmes, trying to drum up support for his party.
Having taken the reins of the UP campaign, Gandhi has hitched the fortunes of the Congress Party and the government led by it at the Centre to his own political future. A loss of face in UP would nail the party to the ground nationally, perhaps even forcing a general election much before 2014. A good performance would cement Gandhi’s position in the party and Parliament, giving his voice more weight. It would also embolden the Congress to swat down its cavilling allies and the obstructive Opposition. Gandhi and the Congress are leaving no pebble unturned. He has pitched himself as the agent of change while party strategists like Digvijay Singh continue to play the old game of community and caste-stacking.
“Highest on RG’s priority list is the implementation of National Food Security Act as well as the UID [Unique Identification Number] since they are two sides of the same coin: One will provide the subsidised food and the other will plug leakages from the system of delivery,” says a close Rahul Gandhi aide about the policies most likely to be executed post election. Gandhi is unhappy that UID implementation ran into rough weather after a confrontation between the Home Ministry and Planning Commission and is eager to put his weight behind the Nandan Nilekani-led effort to provide a unique identity number to the citizens, he said.
BJP was quick to welcome the BSP discards into its fold with a party ticket. It created such a furore within the party and divided even the top leadership that for several days, the focus of the state was squarely on BJP rather than the incumbent. BJP workers and ticket hopefuls who had worked hard for relevance in their constituencies were angry. For a party with a strong cadre base and dedicated workers hoping to make a comeback, it was disaster. The party trying to appease backward communities may also drive away some of the upper caste voters.
Businessmen have kept their investment plans on hold. Fears that Indian capital is taking flight also seem to be unfounded. Latest RBI data showed that Indian companies’ direct investments abroad in the first nine months of fiscal year 2012 fell 28 percent to $25 billion compared to the previous year, belying assertions by many corporate honchos, who were lamenting a capital flight because of a vitiated domestic environment. A Congress Party victory could be a big boost to the industrial sentiment.
(This story appears in the 03 February, 2012 issue of Forbes India. To visit our Archives, click here.)