India’s political future tense

June 1, 2011

India has been undergoing much political churning in recent times, leading to heightened uncertainty, fluctuating business confidence and administrative stasis. India’s political risk ratings have been declining of late and now with the state Assembly polls successfully concluded a fresh political risk appraisal is in order.

The short story is that the state elections have left the ruling coalition in New Delhi with increased stability in the short term but rising risks in the medium and long terms.
Ironically, the defeat of the Dravida Munnetra Kazhagam-Congress combine in the southern state of Tamil Nadu has proved most beneficial for the ruling consortium in the short term as it has allowed, if not impelled, the dominant coalition partner, the Congress Party, to harden its stand against corruption.
Rampant corruption at all levels of the administration in the Central government had massively heightened risks of doing business in India as touts, politicians and powerful bureaucrats were capable of short-circuiting established procedures in the award of contracts, dispute settlement, permissions and so forth.
Corporates and big businesses were forced to turn to intermediaries, some of them distinctly dubious, to get their work done. The “New Delhi fixer” emerged as the symbol of the times, side-lining honest officials and even company managements.
However, it was often the more unscrupulous, cannier businessman with better political contacts who got his way, undercutting rivals and shifting the goal posts. Now with the government at New Delhi signaling tougher counter-measures against corruption, including imprisonment for the rich and powerful, there is bound to be increased confidence in the government and a leveling of the playing field for economic and civil society players. With increased consistency in policy implementation and procedures, the medium- and long-term political risk indicators are bound to decline.
The other aspect of the risk scenario has to do with the stability of the coalition government and its leadership, the consistent and successful implementation of declared policies and the formulation of new policies, rules and procedures to facilitate economic growth and improve conditions for the country’s underprivileged.
Post-state elections, the political risk picture is mixed but largely positive. In the states of Assam and Tamil Nadu, political risk indicators have declined due to the conclusive mandate received by one party — the Congress led by chief minister Tarun Gogoi in Assam and the All-India Anna Dravida Munnetra Kazhagam led by chief minister J. Jayalalithaa in Tamil Nadu. Political risk is down in the Union Territory of Puducherry as well with the decisive victory of former Congress chief minister N. Rangasamy, who is expected to provide continuity in policies and clean governance. Gogoi is more secure with an absolute majority and unlike in the past not constrained by uncertain coalition partners.
Ms Jayalalithaa, too, will be forced to run a clean and open administration and abjure any radical agenda. She will be hugely benefited by the shrunken DMK presence in the Legislative Assembly and the emergence of her poll partner, the Desiya Murpokku Dravida Kazhagam led by Vijayakanth, as the main Opposition.
----Political risk up in West Bengal
Political risk is up in West Bengal despite the clear victory by the Trinamul-Congress combine due to two factors: major and difficult policy changes in the offing and complicated local politics that will increasingly come to the fore in the medium and long terms.
In Kerala, the Congress-United Democratic Front (UDF) has secured a victory which is neither convincing nor entirely happy given that the state witnessed voting along communal lines in many places. This should be reason for long-term concern for chief minister Oommen Chandy.
Outgoing Marxist chief minister V.S. Achuthanandan has emerged stronger within his party after the polls and will seek to challenge the UDF ministry at every step, further complicating the already-involved politics of that state.
The impact of state politics on the ruling coalition at the centre is mixed. Kerala, Assam and West Bengal results have helped stabilize national politics, while the Tamil Nadu polls and the arrest of two senior DMK leaders potentially threaten the alliance’s durability. DMK supremo M. Karunanidhi is reported to be furious with the Congress top brass but cannot act precipitately at this juncture and further isolate himself, although he knows that his continued support is critical to the continuance of the Congress at the Centre. The DMK will remain a high-risk element in the medium term.
The biggest short-term advantage for the ruling United Progressive Alliance (UPA) government is the fact that no major political party or grouping wants elections at this juncture. The fundamentals of the UPA stock, however, remain weak due to its thin parliamentary majority.
The UPA has been progressively losing support in Parliament, a process that began with the departure of the Left parties and Mayawati’s Bahujan Samaj Party (BSP) in 2008. Mulayam Singh’s Samajwadi Party (SP) with its 22 members of Parliament would be too happy to lend support but at a price, which could undercut Congress leader Rahul Gandhi’s attempts to appear as an independent force in Uttar Pradesh politics.
The Congress Party’s failure to implement radical reforms or cleanse the administration coupled with the continued erosion of its support base in the states, its mistakes in choosing the right coalition partners and its inability to articulate a coherent mass line, all suggest rising long-term risk quotients.
SOURCE: Asia Age Daily, New Delhi)
***Indranil Banerjie is an independent security and political risk consultan