In the BJP victory speech in Haryana Assembly elections, the Prime Minister said that they have got a hat-trick in Haryana because of good governance and development. Do you agree with him?
Swaminathan Aiyar: That must be the case. When you consider what a big upset it is and you say, what else could it be? And the answer is, I do not think it can be anything else. Exit polls are, of course, notoriously inaccurate. But the reason this particular one has taken us by surprise is that till now, in almost every case, the BJP would do better in a state in a national election than in the state’s own election, something called the Modi effect, that if Modi’s position was at stake, the BJP did better. This has turned that particular theory on its head.
In the general election, the BJP did much worse. It only won half the seats. Here it has won more than half the seats. And it has been therefore an extremely good performance, extremely heartening for the BJP. There was a possible scenario where after the setback in the general election, the BJP would lose state elections five in a row. There was a chance it might lose in Kashmir, Haryana, in Delhi, in Maharashtra and Jharkhand. Now, it is very clear that the BJP is very much in contention. The BJP is not on the back foot.
In particular, in the Maharashtra election now, there will be a sudden new wind in the sails of the BJP. Till now, the Congress I think was pretty confident that their combination would win in Maharashtra. Now, I do not think that is quite so certain. Can you really say that Haryana has developed but Maharashtra has not developed? If there is development, there has been development in a number of places. And if it did not help the BJP in the national election, was there something so exceptional in Haryana at the state level? It would be difficult to argue that. But the fact is that they have won. And it would be very clear that there is a certain lack of credibility of the Congress leaders in Haryana. They have been out of power for some time and will be out of power for five years more.
In the Haryana assembly elections, if we delve deeper into some of the reasons why BJP’s performance has been contrary to popular perception at least after the general elections, there was this toss up. It seemed to be catering to food consumers or food producers, whether to appease the common man or the farmer. You can get the common man to vote for you if you reduce prices of daily commodities. But any cut on those prices would almost most likely impact the take-home of farmers. Do the election results of Haryana prove that the BJP has done well in convincing farmers that the party is on their side?
Swaminathan Aiyar: You have to contrast the fact that just a few months ago they suffered a very big defeat in Haryana. It was the same party. The objective conditions of the economy have not transformed in these few months. So, when the BJP had such a serious defeat in the general election, the question arises, why has it done so well in the state election? I do not think it can be a generalised issue on issues of food price development. I suspect it is because of local factors.
I suspect that the BJP choice of candidates must have been much better than the Congress choice of candidates. I think perhaps the organisational impetus must have been better for the BJP. You will find that the Congress is so stunned that Jairam Ramesh says we cannot accept these results and there might have been tampering of the electronic voting machines in some areas. I mean, that is the kind of objection that every loser comes out with. So, as of now, I see no reason to take that seriously. But I would simply say that, yes, there must be something very local and very strong about the BJP. Part of it must have been the choice of candidates.
Also there is a question of the spread of the votes. As a share of the popular vote, the Congress did slightly better than the BJP and yet in terms of seats, it did much worse. So, it is a question of the spread effect of how your votes were spread over. It would be interesting to do a micro analysis to try and see whether it is consistent and the fact that the Congress had this edge in the popular vote, why was it? Maybe it got translated more in the case of the general election than in the state election. But on general economic terms, it would be very difficult to explain why the BJP has done so much better this time.
The PSU stocks have risen today, the markets have done a U-turn and as far as Haryana results are concerned, many market veterans are talking about continuity of policy that they have been assured after the general elections that there is going to be that and you did allude to that, that these results perhaps in some way reassure that they are still in contention, the BJP. What do you make of what we have seen on the PSU front and policy continuity?
Swaminathan Aiyar: It would be very amusing to say that the strength of the public sector is what Modi represents. Modi has in fact attempted to represent liberalisation of the economy, getting new entrepreneurs, many-many more people. I mean, I will not claim that we can explain one single day’s movement by a single political event in this particular fashion. But yes, perhaps the public sector stocks have lost a little ground in the last month or two and they were looking for some reason to come up and they seem to have found a reason right now. I would not say that the market in general was worried about the future of the BJP, that would be wrong. I mean, BJP had come back for the third time in a row, done by post 1991 standards perfectly well in the general election. So, I do not think there was any fear that the BJP is going to go out of power and now we are clear that the BJP is in power.
The BJP will be happy with its victory in Haryana. But it did not do that well in Kashmir. And I would say that at the end of it all, both Congress and the BJP have something to cheer. I would not think that the public sector would be regarded as some particular sector that will do very well under Modi and badly under Congress. I would not accept that particular line of analysis.
In their election manifestos, both the Congress and the BJP ahead of the assembly polls, committed to monetary assistance of more than Rs 2000 monthly to all women in the state, that was one promise. This expenditure would approximately make up 1.7% of the state’s FY25 GDP. With the kind of debt that Haryana has at this point, how sustainable would a scheme like this be? There were fears that BJP would have to bring in populist measures in case these assembly elections were not won. Are those fears unfounded?
Swaminathan Aiyar: Populism is part of democracy. It cannot be wished away. Modi’s strength has been that he has taken the Congress’s best schemes, some of which were called populist at the time, he has made them even better. It was the Congress party that brought in this food at only Rs 3 and Rs 2 a kilo and Modi has made it completely free and he has managed to do all that even while managing the fisc quite well.
In sum, various populist policies, various giveaways, various schemes for women, for small scale people, for various sectors, all of those are going to continue. But the political economy appears to be such that we are able to keep populist giveaways within reasonable limits. And as a result, the economy has gone forward both under Congress and under BJP, despite a profusion of freebies of one kind or the other.
Jayalalithaa was once quoted as the ultimate case; she had 47 different forms of freebies for various sectors and yet Tamil Nadu managed to do perfectly well. Perhaps Indian politicians have mastered the art of appearing to give away more and more and managed to keep it within about 2% of GDP. If you are able to do that, it is manageable and that is a function of democracy. If that is achieved by populist schemes, that is part of a good democratic result, provided it does not go overboard and it would appear in India, we do not go overboard.
Populism is intrinsic to Indian democracy, and we have seen it in different measures in different parts of the country by different state governments, by the central government as well. But now while state election results are not quite the needle movers for the markets or the economy, there are certain exceptional states like Uttar Pradesh or Maharashtra. Maharashtra goes into elections later this year. Do you sense that that election is going to be based more on economic rather than political issues because some very local issues have been playing out in the case of Haryana. How different is it going to be in Maharashtra?
Swaminathan Aiyar: The local factors will become very important. That is one thing that has come out in the Haryana case. And the idea that there is one single trend which would be followed regardless, I think that is not the case. So, a lot of attention will have to be paid in Maharashtra. Now, the BJP there has the problem that it has to accommodate a number of partners. Will it be able to accommodate those partners and get it to work for them with the same enthusiasm that they would have worked for the BJP alone in Haryana? So, we cannot take that for granted.
Secondly, I would say Uddhav Thackeray has the name of the Shiv Sena. I mean, officially, you may say Eknath Shinde is recognised by the Election Commission, but as far as the general population is concerned, I think Thackeray’s family is the one that people associate with the Shiv Sena. I would say that the Congress-Shiv Sena combined would still be the favourites even after this election. Because the BJP is having to accommodate some parties which basically do not have good roots, Ajit Pawar breakaway faction and Eknath Shinde’s breakaway faction, do not have any good deep roots in local politics and yet, they will have to be accommodated in terms of seats. This is a disadvantage they are going to have in broader terms, in terms of freebies and giveaways. That will be the usual competition.
But as I said, given that the NDA did that badly in the general election, will it be able to turn around and do very much better in the coming state election? The Haryana example will give the BJP heart and say, yes, we can do it, we can turn this around. I say the objective conditions are more difficult in Maharashtra than they were in Haryana. I would still say Congress-Shiv Sena combined to be the favourites there.
Is it going to give the Congress’s allies an upper hand when it comes to getting a lion’s share of the seats that they want to contend on together and that is something that we will be watching out for? Now that China has brought in its stimulus measures, the surge that we are seeing on the Shanghai, the Hang Seng indices, seem to be coming at the cost of FII holdings in Indian equities. Will FIIs continue to pull out considering that the American economy is also looking rather robust, looking at the employment numbers?
Swaminathan Aiyar: Yes, this is something that I mentioned on previous occasions that really it is time to sell India and buy China and that indeed has turned out to be the case. I cannot claim to have followed the advice myself, but the people who did that certainly turned out to do very well. The question then arises, has the Chinese upsurge reached a peak and will it reduce anytime soon? I do not think so. There is still a lot of steam behind the Chinese recovery. Their markets really got beaten down. Their valuations really went to absolute very low levels.
So, will people continue to invest? Will China continue to do well? I think yes, at least for some time. I mean, it may settle down after, let us see what the next rounds of economic figures are. But yes, the Chinese valuations, I would say, are still attractive compared with Indian valuations. To that extent, if there are equity allocations between those two countries, I would definitely expect a certain amount of money to go into the idea of sell India, buy China, even now.
