India’s month long General Elections, which will decide the political framework of the next government, is turning out to be a three-way contest.

The tussle for power used to be bi-polar one between the two largest national political alliances, the Indian National Congress led United Progressive Alliance (UPA) and Bharatiya Janata Party (BJP) led National Democratic Alliance (NDA). Now this has turned to be three-way one with a Third Front, comprising of the Communist Parties and smaller regional parties, presenting another alternative. An emerging power broker is likely to be the Bahujan Samaj Party (BSP), representing low-caste interests, that runs the state government in India’s largest province Uttar Pradesh. It is likely to win significant seats.

The Communist Parties emerged as a prominent force following their intense opposition to the Indo-U.S. Civil Nuclear Agreement that threatened the survival of India’s ruling coalition government of the United Progressive Alliance (UPA) last year.

This three way contest, however, has a bi-polar implication. On the one hand, the UPA and the NDA alliances have the experience of successfully running a National Government that propelled India to grow its Gross Domestic Product (GDP) more than 9% in recent years. On the other hand, the inexperienced Third Front has never been able to provide a stable government having only ever been in power for less than half of any full five-year term. Moreover, they are likely to be less inclined to open up India’s economy that has been turbo-charged over the past decade. Election results are due to be announced on May 16th.

Both the Congress and BJP led governments have successfully accelerated India’s GDP growth rate to about 7% today from 1.4% in 1991-92. This momentum peaked at 9.7% in the fiscal year 2006-07 before slowing down on account of the worldwide recession.

If historical patterns are anything to go by, the voting in of the 15^th Lok Sabha or the House of the People, the directly elected lower house of the Parliament of India, will mark a starting point for a sharp ramp-up in economic activity for the country. Economic activity, as measured by industrial production index, had increased immediately after five elections out of seven polls since 1984, as political stability provided a platform for economic growth.

Economic activity has risen consecutively following the last three elections held on 1998, 1999 and 2004.  A comparison of industrial production (IP) data before elections and six months after elections, shows that on five occasions, the IP index rose by 20-80 basis points, according to data from Goldman Sachs Global ECS Research.

The Interim Budget for the financial year 2009-10 announced in February by the Finance Minister of the ruling United Progressive Alliance (UPA), focused on infrastructure development, easing of Foreign Direct Investments (FDIs) norms and economic stimulus packages that set the ground for how the alliance was approaching the General Elections.

The new Government that comes in to power would be best served if it continued and augmented the “India Shining” policies that currently sustain a Gross Domestic Product (GDP) growth of more than 7% as India continues to defy negative GDP growth seen in many Western economies.

Such growth initiatives have led to an economic revival in key sectors like steel, cement, automobile, food and beverages and fast moving consumer goods (FMCG) (See Vol 4 | Issue 3 ‘Clearing The FDI Highway’) that are best not derailed.

Bundeep Singh Rangar
Chairman, IndusView
Bundeep.Rangar@IndusView.com
www.indusview.com