The Political Account
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The Political Account
After evaluating the balance sheets of two political alliances, our vote goes to. . . NDA
By the end of May 2009 we will have a new government. Whether the UPA returns to the power or the NDA surprises us or we will see political uncertainties like we saw in the late 1990s, will be clear only after the results. In this backdrop, we evaluate the performances of both the NDA and UPA governments and derive the conclusion among these two alliances which one would be better for the country which is facing one of the difficult times. The next government will have to carry out several reforms such as raising FDI limit in insurance sector, amendments to the banking laws to providing voting power in proportion to shareholding, labour laws reforms and large scale divestments in PSUs etc.
NDA’s performance (March 1999- May 2004) True it is that any incoming govt. would often carry forward the initiatives taken by the outgoing govt. But the NDA govt. initiated many steps that were either politically sensitive or path breaking, setting new benchmark in governance. If the P.V. Narsimharao Government liberalised the Indian economy, the NDA govt. led by Atal Bihari Vajpayee took it to another level and set a scorching pace of reforms in the first two years of its rule. It paid considerable attention to infrastructure in the first 2-3 years, especially the roads and the telecom sector. It introduced unified licensing regime in telecom sector and earmarked Rs 58,000-crore for the ambitious National Highway Development Programme. Some of the road projects like the Golden Quadrilateral, North-South and East-West corridor connecting state capitals were the major initiatives. Golden Quadrilateral is still incomplete. There were many politically sensitive issues where decisions were taken by the government including open skies policy for civil aviation, airport privatisation, dismantling the administered price mechanism in oil sector among others. The NDA government pushed through some path breaking articles of legislation, including the Fiscal Responsibility and Budget Management Bill (FRBM) and the Electricity Bill notwithstanding these bills were stuck for many years. The NDA government also liberalised foreign investment norms and increased FDI limits on various sectors including petroleum, broadcasting and media. Among other initiatives were Privatization, PGSY, River Linking, Telecom & Insurance Reforms. The Indo- US nuclear deal too was initiated by this government. Thus, the NDA govt. would be remembered for its reform initiatives and good governance among others.
UPA’s performance (May 2004- May 2009) It’s sad that an able person who is called the father of globalisation failed to carry out a single reform and the nation was held to ransom by the left parties. Though the Congress led UPA government came in power on “Aam Aadmi” plank and since it was inevitably dependent on the support of left parties, it put the reform on the backburner. However it carried out some of ambitious programs like NREGP, Bharat Nirman etc. One of the achievements of this government was implementation of Kelkar committee’s recommendations on tax reforms. It widened the income slabs drastically but at the same time it levied new education cess of 2% which was further increased to 3%. It also introduced job reservation to the OBCs but that was a plank by shrewd HRD minister who was feeling political insecurity. Deepak Tiwari Research Analyst [email protected] T: + 91 22 4600 0345
March 19, 2009
The UPA inherited a buoyant economy from the NDA. The 9% average growth rate in the first four years of the UPA rule had many of its drivers outside the country. It could be possible only because of FIIs inflows and great times the global economies had. Unfortunately the UPA did not make use of this unprecedented opportunity to reduce revenue and fiscal deficits. The major achievements of this government could be running the government to its full term giving stability to the nation despite stiff opposition from allies like left parties, Indo US Nuclear pact, encouraging pro common man and rural programs including various rural employment generating programs, agricultural subsidies and quick implementation of sixth pay commission.
For Private Circulation only
An evaluation: Who is better between UPA and NDA? If past is any guide to the future then NDA’s achievements were far better than the UPA’s. Needless to say that either of Congress or BJP comes to power they will push through reforms on large scale and observe fiscal restraints. But these governments may be crippled by nefarious allies like left parties or regional parties such as Jayalalitha or Mayawati. The BJP led NDA government introduced appraisal system of ministries and many incapable ministers were shown the door due to underperformance. We did not witness this during the UPA regime. For instance the Department of Telecommunications led by A. Raja messed up with government treasuries by selling precious GSM spectrum at throw away prices and could not carry out 3G auctions in three years of time. Indian telecom sector, one of the fastest growing sectors, is plagued with uncertainties vis-à-vis policies which were often tweaked every now and then by Mr Raja at the helm of the Department of Telecommunications (DoT). To make things worse, ministers like Shivraj Patil and Arjun Singh proved to be a great liability for the government and the nation alike. Unlike Congress, BJP has an internal democracy where even leaders like Advani can be questioned. There is no high command culture or you have to prove your loyalty to a family. Thus, after evaluating the balance sheets of two political alliances, our vote goes to the NDA.
Whose chance is brighter? Unlike previous tenure, the NDA lacks charismatic and able leaders like Vajpayee this time. Most of the BJP leaders are ageing and the party is not adequately represented by the youth. It has become a victim of internal fight and there is no clear authority to curb it effectively. Further, its former allies like TDP led by Chandrababu Naidu in Andhra Pradesh, BJD led by Navin Patnaik in Orisa, DMK led by Karunanidhi in Tamil Nadu, Trinamul Congress led by Mamata Banerjee in West Bengal have parted away with. But even Congress is not in the advantageous position. It failed to reach on any seat sharing agreement with Samajwadi Party in UP, RJD and LJD in Bihar whereas NCP has compelled it to go solo in Maharashtra. To make things worse for both these national parties, regional parties are forging a third front to give an alternative government. Though it would not be so easy for the third front but in politics nothing is impossible. As they say in politics there is no permanent friend or foe. So, we should not be surprised by any unexpected political formation. This time it is almost impossible to predict who is going to form the government: incumbent UPA, erstwhile NDA or a third front. And there are two reasons for this uncertainty. Firstly, 499 out of 543 Lok Sabha seats have been newly delimited. Secondly, all political parties under the respective alliances have failed on seat sharing agreement. Thus, they will be fighting elections with each other in several constituencies. If Congress or BJP win more than 300 seats together there is no hope for the third front. If the regional parties emerge stronger then there is a chance for the third front and we suspect it will fail to give a stable government. In this case, it would be a disaster for the capital markets.
Challenges for the incoming government No matter who forms the next government in Delhi, it shall face some serious challenges. One of them would be dealing with deflationary situation, curbing fiscal upheaval, pushing through reforms, arriving at the consensus on GST and its implementation, carrying out disinvestment programs and managing its debts. It would be a herculean task for the next government to shore up consumer and business confidence and bring the economy back on the growth trajectory. Needless to say that this is beyond the pale of its capacity as Indian economy and markets move in tandem with the world economy. So, unless the world economy rebounds India cannot continue the momentum. The only things the government should zero in on is efficient management of finances and full fledge support to reforms and infrastructure development. Any populist measures taken or inaction will only dampen the prospects of growth and push economy into deep slump.
March 19, 2009
For Private Circulation only
Performance Appraisal of UPA and NDA SL No.
1
2
3
Major achievements of the UPA
Comments
Tax Reforms
Overhauled the tax systems on Kelkar committee's recommendations. Did away with many exemptions and deductions including Standard deduction. Simplified tax slabs and tax laws. Introduced VAT, Fringe Benefit Taxes and Securities Transaction Taxes.
Comments
Tax Reforms
It implemented the administrative reforms only. Reduced rebate u/s 88 from 20% to 15%. Reduced peak customs duty to 20%. Rationalized cenvat at 16%
Major reforms
Not a single reform took place .
Major reforms
Reforms in sectors like infrastructure, telecom, roads, airports, ports, railways and power
Reservation for OBCs
The Congress was caught when its shrewd HRD played this political gimmick.
Pokharan Nuclear Test
It put India on international map.
4
---
5 6
Major achievements of the NDA
FRBM Bill and Electricity Bill
---
The NDA govt. could mobilize barely about Rs 8,440 crore against its ambitious targets which never accomplished.
Divestment in PSUs
Flagship plans:
Flagship plans:
National Rural Employment Guarantee Program
100 days employment to the breadwinner in each family at minimum wages.
Sarva Shiksha Abhiyaan
To enable children
Bharat Nirman
Government focused on rural growth targeting irrigation, habitations, drinking water, and electrification.
Annapurna scheme
For providing food security at free of cost thru Gram Panchayats
Growth Story: Score Card Particulars
UPA (2004-2009)
NDA (1999-2004)
GDP
8.40%
5.80%
Combined Deficit/GDP
7.40%
9.38%
Center's Deficit/GDP
5.30%
6.40%
Export Growth
23.5%*
14.30%
FDI Inflow ($ billions)
69.403
15.34
Forex Reserves ($ billions)
202.4
61
Petrol Prices increased
25.5%
20.7%
Diesel Prices increased
91.1%
69.2%
LPG Prices increased
23.4%
62.1%
6.38
4.58
3%
---
Inflation Education Cess Sources: CSO, DIPP, Dept. Of Commerce, Ministry of Finance
March 19, 2009
For Private Circulation only
enrolment
of
all
GDP Growth
Agriculture growth
12.0%
12.0% 10.0%
10.0% 8.0% 6.0%
8.0%
4.0% 6.0% 2.0% 0.0%
4.0%
-2.0% 2.0% -4.0% -6.0% 0.0% NDA
UPA
-8.0%
NDA
UPA
Inflation 8
Forex Reserves 350
7
300
6 250 5 200 4 150 3 100 2
50
1 NDA 0
March 19, 2009
UPA
NDA 0
For Private Circulation only
UPA
FDI in $ billion
Export Growth
30
35.0%
30.0% 25 25.0% 20 20.0%
15
15.0%
10.0% 10 5.0% 5 0.0%
0
NDA
UPA
-5.0%
NDA
UPA
* 2008-09 figures are estimated. # FDI figures are taken up to Nov ‘08
Disclaimer: This document has been prepared by Arthaeon Financial Services and is meant for sole use by the recipient and not for circulation. This document is not to be reported or copied or made available to others. It should not be considered to be taken as an offer to sell or a solicitation to buy any security. The information contained herein is from sources believed to be reliable. We do not represent that it is accurate or complete and it should not be relied upon as such. Arthaeon Financial Services and/or its affiliates or employees shall not be liable for loss or damage that may arise from any error in this document. Arthaeon Financial Services may have from time to time positions or options on, and buy and sell securities referred to herein. We may from time to time solicit from, or perform investment banking, or other services for, any company mentioned in this document.
March 19, 2009
For Private Circulation only
After evaluating the balance sheets of two political alliances, our vote goes to. . . NDA
By the end of May 2009 we will have a new government. Whether the UPA returns to the power or the NDA surprises us or we will see political uncertainties like we saw in the late 1990s, will be clear only after the results. In this backdrop, we evaluate the performances of both the NDA and UPA governments and derive the conclusion among these two alliances which one would be better for the country which is facing one of the difficult times. The next government will have to carry out several reforms such as raising FDI limit in insurance sector, amendments to the banking laws to providing voting power in proportion to shareholding, labour laws reforms and large scale divestments in PSUs etc.
NDA’s performance (March 1999- May 2004) True it is that any incoming govt. would often carry forward the initiatives taken by the outgoing govt. But the NDA govt. initiated many steps that were either politically sensitive or path breaking, setting new benchmark in governance. If the P.V. Narsimharao Government liberalised the Indian economy, the NDA govt. led by Atal Bihari Vajpayee took it to another level and set a scorching pace of reforms in the first two years of its rule. It paid considerable attention to infrastructure in the first 2-3 years, especially the roads and the telecom sector. It introduced unified licensing regime in telecom sector and earmarked Rs 58,000-crore for the ambitious National Highway Development Programme. Some of the road projects like the Golden Quadrilateral, North-South and East-West corridor connecting state capitals were the major initiatives. Golden Quadrilateral is still incomplete. There were many politically sensitive issues where decisions were taken by the government including open skies policy for civil aviation, airport privatisation, dismantling the administered price mechanism in oil sector among others. The NDA government pushed through some path breaking articles of legislation, including the Fiscal Responsibility and Budget Management Bill (FRBM) and the Electricity Bill notwithstanding these bills were stuck for many years. The NDA government also liberalised foreign investment norms and increased FDI limits on various sectors including petroleum, broadcasting and media. Among other initiatives were Privatization, PGSY, River Linking, Telecom & Insurance Reforms. The Indo- US nuclear deal too was initiated by this government. Thus, the NDA govt. would be remembered for its reform initiatives and good governance among others.
UPA’s performance (May 2004- May 2009) It’s sad that an able person who is called the father of globalisation failed to carry out a single reform and the nation was held to ransom by the left parties. Though the Congress led UPA government came in power on “Aam Aadmi” plank and since it was inevitably dependent on the support of left parties, it put the reform on the backburner. However it carried out some of ambitious programs like NREGP, Bharat Nirman etc. One of the achievements of this government was implementation of Kelkar committee’s recommendations on tax reforms. It widened the income slabs drastically but at the same time it levied new education cess of 2% which was further increased to 3%. It also introduced job reservation to the OBCs but that was a plank by shrewd HRD minister who was feeling political insecurity. Deepak Tiwari Research Analyst [email protected] T: + 91 22 4600 0345
March 19, 2009
The UPA inherited a buoyant economy from the NDA. The 9% average growth rate in the first four years of the UPA rule had many of its drivers outside the country. It could be possible only because of FIIs inflows and great times the global economies had. Unfortunately the UPA did not make use of this unprecedented opportunity to reduce revenue and fiscal deficits. The major achievements of this government could be running the government to its full term giving stability to the nation despite stiff opposition from allies like left parties, Indo US Nuclear pact, encouraging pro common man and rural programs including various rural employment generating programs, agricultural subsidies and quick implementation of sixth pay commission.
For Private Circulation only
An evaluation: Who is better between UPA and NDA? If past is any guide to the future then NDA’s achievements were far better than the UPA’s. Needless to say that either of Congress or BJP comes to power they will push through reforms on large scale and observe fiscal restraints. But these governments may be crippled by nefarious allies like left parties or regional parties such as Jayalalitha or Mayawati. The BJP led NDA government introduced appraisal system of ministries and many incapable ministers were shown the door due to underperformance. We did not witness this during the UPA regime. For instance the Department of Telecommunications led by A. Raja messed up with government treasuries by selling precious GSM spectrum at throw away prices and could not carry out 3G auctions in three years of time. Indian telecom sector, one of the fastest growing sectors, is plagued with uncertainties vis-à-vis policies which were often tweaked every now and then by Mr Raja at the helm of the Department of Telecommunications (DoT). To make things worse, ministers like Shivraj Patil and Arjun Singh proved to be a great liability for the government and the nation alike. Unlike Congress, BJP has an internal democracy where even leaders like Advani can be questioned. There is no high command culture or you have to prove your loyalty to a family. Thus, after evaluating the balance sheets of two political alliances, our vote goes to the NDA.
Whose chance is brighter? Unlike previous tenure, the NDA lacks charismatic and able leaders like Vajpayee this time. Most of the BJP leaders are ageing and the party is not adequately represented by the youth. It has become a victim of internal fight and there is no clear authority to curb it effectively. Further, its former allies like TDP led by Chandrababu Naidu in Andhra Pradesh, BJD led by Navin Patnaik in Orisa, DMK led by Karunanidhi in Tamil Nadu, Trinamul Congress led by Mamata Banerjee in West Bengal have parted away with. But even Congress is not in the advantageous position. It failed to reach on any seat sharing agreement with Samajwadi Party in UP, RJD and LJD in Bihar whereas NCP has compelled it to go solo in Maharashtra. To make things worse for both these national parties, regional parties are forging a third front to give an alternative government. Though it would not be so easy for the third front but in politics nothing is impossible. As they say in politics there is no permanent friend or foe. So, we should not be surprised by any unexpected political formation. This time it is almost impossible to predict who is going to form the government: incumbent UPA, erstwhile NDA or a third front. And there are two reasons for this uncertainty. Firstly, 499 out of 543 Lok Sabha seats have been newly delimited. Secondly, all political parties under the respective alliances have failed on seat sharing agreement. Thus, they will be fighting elections with each other in several constituencies. If Congress or BJP win more than 300 seats together there is no hope for the third front. If the regional parties emerge stronger then there is a chance for the third front and we suspect it will fail to give a stable government. In this case, it would be a disaster for the capital markets.
Challenges for the incoming government No matter who forms the next government in Delhi, it shall face some serious challenges. One of them would be dealing with deflationary situation, curbing fiscal upheaval, pushing through reforms, arriving at the consensus on GST and its implementation, carrying out disinvestment programs and managing its debts. It would be a herculean task for the next government to shore up consumer and business confidence and bring the economy back on the growth trajectory. Needless to say that this is beyond the pale of its capacity as Indian economy and markets move in tandem with the world economy. So, unless the world economy rebounds India cannot continue the momentum. The only things the government should zero in on is efficient management of finances and full fledge support to reforms and infrastructure development. Any populist measures taken or inaction will only dampen the prospects of growth and push economy into deep slump.
March 19, 2009
For Private Circulation only
Performance Appraisal of UPA and NDA SL No.
1
2
3
Major achievements of the UPA
Comments
Tax Reforms
Overhauled the tax systems on Kelkar committee's recommendations. Did away with many exemptions and deductions including Standard deduction. Simplified tax slabs and tax laws. Introduced VAT, Fringe Benefit Taxes and Securities Transaction Taxes.
Comments
Tax Reforms
It implemented the administrative reforms only. Reduced rebate u/s 88 from 20% to 15%. Reduced peak customs duty to 20%. Rationalized cenvat at 16%
Major reforms
Not a single reform took place .
Major reforms
Reforms in sectors like infrastructure, telecom, roads, airports, ports, railways and power
Reservation for OBCs
The Congress was caught when its shrewd HRD played this political gimmick.
Pokharan Nuclear Test
It put India on international map.
4
---
5 6
Major achievements of the NDA
FRBM Bill and Electricity Bill
---
The NDA govt. could mobilize barely about Rs 8,440 crore against its ambitious targets which never accomplished.
Divestment in PSUs
Flagship plans:
Flagship plans:
National Rural Employment Guarantee Program
100 days employment to the breadwinner in each family at minimum wages.
Sarva Shiksha Abhiyaan
To enable children
Bharat Nirman
Government focused on rural growth targeting irrigation, habitations, drinking water, and electrification.
Annapurna scheme
For providing food security at free of cost thru Gram Panchayats
Growth Story: Score Card Particulars
UPA (2004-2009)
NDA (1999-2004)
GDP
8.40%
5.80%
Combined Deficit/GDP
7.40%
9.38%
Center's Deficit/GDP
5.30%
6.40%
Export Growth
23.5%*
14.30%
FDI Inflow ($ billions)
69.403
15.34
Forex Reserves ($ billions)
202.4
61
Petrol Prices increased
25.5%
20.7%
Diesel Prices increased
91.1%
69.2%
LPG Prices increased
23.4%
62.1%
6.38
4.58
3%
---
Inflation Education Cess Sources: CSO, DIPP, Dept. Of Commerce, Ministry of Finance
March 19, 2009
For Private Circulation only
enrolment
of
all
GDP Growth
Agriculture growth
12.0%
12.0% 10.0%
10.0% 8.0% 6.0%
8.0%
4.0% 6.0% 2.0% 0.0%
4.0%
-2.0% 2.0% -4.0% -6.0% 0.0% NDA
UPA
-8.0%
NDA
UPA
Inflation 8
Forex Reserves 350
7
300
6 250 5 200 4 150 3 100 2
50
1 NDA 0
March 19, 2009
UPA
NDA 0
For Private Circulation only
UPA
FDI in $ billion
Export Growth
30
35.0%
30.0% 25 25.0% 20 20.0%
15
15.0%
10.0% 10 5.0% 5 0.0%
0
NDA
UPA
-5.0%
NDA
UPA
* 2008-09 figures are estimated. # FDI figures are taken up to Nov ‘08
Disclaimer: This document has been prepared by Arthaeon Financial Services and is meant for sole use by the recipient and not for circulation. This document is not to be reported or copied or made available to others. It should not be considered to be taken as an offer to sell or a solicitation to buy any security. The information contained herein is from sources believed to be reliable. We do not represent that it is accurate or complete and it should not be relied upon as such. Arthaeon Financial Services and/or its affiliates or employees shall not be liable for loss or damage that may arise from any error in this document. Arthaeon Financial Services may have from time to time positions or options on, and buy and sell securities referred to herein. We may from time to time solicit from, or perform investment banking, or other services for, any company mentioned in this document.
March 19, 2009
For Private Circulation only
