Will need to see if SP supports reforms: Mahesh Rangarajan

Political Analyst Mahesh Rangarajan said the government is now on a stable wicket and is here to stay.

He added that it has to be seen whether with the support of the Samajwadi Party - a newfound ally - the government pushes ahead with reforms, particularly on pensions and in the insurance sector.

“It appears that the SP is not in a mood to support the entry of FDI in retail. There are very specific reform measures that can go through. The government been somewhat politically damaged by the revelations and the shenanigans over the last few days. So, it has survived but we will have to see how much political strength it actually possesses. But if the deal is through, that will naturally strengthen the PM and the Congress President.”

Excerpts from CNBC-TV18’s exclusive interview with Mahesh Rangarajan:

Q: From what you have seen and heard of what has happened in the Parliament, does it seem like the political turf from a money market and equity market perspective has been cleared out for the next few months?

A: The government is now on a stable wicket. There were apprehensions that it will not be able to muster a majority. It has demonstrated that it has the numbers on the floor of the house.

This government is now here to stay. We have to see whether with the support of the Samajwadi Party - a newfound ally - it pushes ahead with reforms, particularly on pensions and in the insurance sector.

It appears that the SP is not in a mood to support the entry of FDI in retail. There are very specific reform measures that can go through. The government been somewhat politically damaged by the revelations and the shenanigans over the last few days. So, it has survived but we will have to see how much political strength it actually possesses. But if the deal is through, that will naturally strengthen the PM and the Congress President.

Q: Do you think the market or generally people will focus on the net result of the vote? Do you think there will be some lingering bad taste in the mouth because of the cash controversy that will take some part of the sting out of the vote that got concluded today?

A: A win is a win. Of course, all parties will have to introspect and perhaps the government may have to introspect more. In the past in 1993, Narasimha Rao did survive. If you link this to the reforms question, the reform train under Narasimha Rao ran a little longer until about December 1994 and the defeat in the winter assembly elections in South India. So, it does damage the Congress Party and the UPA.

But it depends on how they weather it. One of the positive things about being in the government is that two or three fairly specific measures can actually initiate a new set of debates. So, this won’t go away.

I think they have been damaged particularly because of the way in which the vote played. It has vitiated the atmosphere. It seems to me that both the opposition formations - NDA and the new Third Front - will soon launch a fresh offensive.

Q: Does this leave the UPA in a very confident, stable position for the next six months where they can do some work, which pleases the economy minus the Left or you would wait and watch and not pass judgement on that just yet?

A: I would wait and watch. There are six state assembly elections coming - J&K and then a clutch that comes in December. We are just nine months from a general election. Normally in India, governments, particularly for coalitions, this is a time for them to try cautiously and slowly. There are very specific things they can do.

The monsoon has been excellent in North India. If you look at Maharashtra, Andhra, Karnataka, and large parts of Gujarat, the sowing has really been delayed. The last 10 days have been virtually disastrous. So, I expect very serious changes in terms of prices of oilseeds and pulses. I really see a government under enormous pressure, not just due to inflation or food prices in general but due to pulses and oilseeds and sugar by early winter, perhaps by autumn.

So, I think this government has its work cut out. Somewhere around 30 or 35 of those votes were from the SP, which has a single point agenda right now, which is to settle scores with Mayawati. So, if the Union government chooses to go ahead and prosecute her we are going to have an enormous political turmoil. It will boomerang but a bulk of the energy of the government will move to political firefighting brought on by an ally that feels boosted by this vote. So, it is time for some caution and I would wait and see what the mood is in the treasury benches a week from now.

At the same time one must be clear that the Samjwadi Party has been central to this victory and it will have its own agenda and one has to see how far is its political agenda particularly of settling scores with Uttar Pradesh Chief Minister Mayawati drive the government into a political maelstrom which will expend a lot of energy. For now I think the government is secure and we have to see what it makes of the fresh lease of life it’s got.  

Q: You just heard Finance Minister speak about the economic agenda, speak about thrust is now going to be on reforms, with the Left out of the picture, do you think it will give the government enough elbow room to actually push forward with the reform agenda?

A: Yes because it seems to me pension reforms, insurance all of those become possible, particularly disinvestments; specific things which the Left had strong views about. But other than that we have 6 State Assembly elections, general elections are 9 months away. Inflation is a major worry. In Southern India and Western India things are bad in terms of rainfall failure, so the elbow room for the government has increased but there are limits to it.

Q: Do you actually think the process and the manner in which we actually seem this trust vote go through this business of bribery, corruption, the scandal, the taint associated with it will shake investors confidence, business confidence because the elections now because everybody was talking about the possibility of Nov-December but with 275 (votes) on the table do you actually see November-December elections?

A: No, I think that is highly unlikely possibility, with any coalition you cannot say with absolute certainty but I would be very surprised if elections are held ahead of schedule. We would probably see them in March-April next year. But the manner in which the numbers came together, yes one will have to see how healthy the manner was. Frankly some of the allegations that have been made today about the CBI alleged bribery they have tainted the house in general and that concerned is shared by all party leaders but of course the government would be the most worried about that and the one mustn’t forget that Narasimha Rao  did suffer from this taint of August 1993, he won the majority but something was missing after that and I think there is that danger with UPA today.

Q: This bribery scandal has not just dented the credibility of the victory; do you think this would snowball in some sort of election issue as well?

A: It will be picked up but one should be cautious; who are the people who vote with corruption as one of three concerns and definitely I would say that those who are highly tuned into high level politics, middle classes, urban India is very concerned about it. I will argue that it does affect two people; I think they will weather the storm but it is going to be a story. One is the UPA Chairperson and the other is the Prime Minister because both have the reputation for being clean, for being not the being run of the mill politician and that is something which would worry them. So they maybe have to do some introspection not on what they have done but on the atmosphere around which this vote took place.

Q: We are staring at inflation at 12% levels, reports of drought in many parts of the country and perhaps staring at election in about 9-10 months and UPA with its new allies and friends be cagey about approaching elections 9-10 months from now or does it find itself in a better position

A: I think the UPA is on a sticky wicket because if one looks at the major groups who voted for it, if you look at cultivators there has been a lot that happened which was positive over last year; good minimum support price (MSP), excellent harvest, good procurement. Much of that has got upset by diesel prices for eg if you are a farmer and you use a tractor for 1000 hours a year it adds Rs 600 to your bills, so I think that is one group they would be very worried about and hope Mulayam Singh Yadav will bring in some votes in UP and some support.

What would really worry them and this is very important is the way in which Mayawati has moved to the center of this possible third front because with her there has been very interesting dovetailing; she is moving away from caste based  affiliation and appeal to try in bring together the poor on a larger scale  but also those who are better off this appeal of tough law and order this would really worry the Congress and with high inflation and Mayawati as the center because last year she had rallies in 10 State capitals and I would imagine sometime she would have joint rallies with her allies, so its going to be tough these 9 months and UPA better work out how it retains the people who voted for it 4 years ago.