Bangalore: India’s “No-Confidence” motion in the current government is underway in Parliament with the vote most likely to to happen at 6-6.30pm India time (although it could of course be postponed until later in the evening) By way of background, here is some analysis of the number game, possible outcomes and implications.
Here are our guess of the numbers at present from our constant eye on the proceedings in the media, press and some contacts in the political circles which can not be revealed.
According to these numbers, therefore, the UPA coalition, appears close to magic number of 272, needed to gain a majority. Furthermore sources within the government have been hinting that it will gain the support of unidentified others. The rumours are as follows:
The eventual outcome is clearly very hard to call with behind the scene political activities likely to continue until the last vote is cast.
However, as of now the UPA government looks to have a slight edge. The so called assumed seven undecided MP’s can assume a crucial role and there are some talks about the declining confidence of the Janta Dal-Secular and Rashtriya Lok Dal. They together have a share of six crucial votes in the number game.
In the debate yesterday, the leader of the opposition has gone on record as saying that that the current govenment seems to be like a patient in ICU (intensive care unit) with the question ”will it survive”? However, the Rashtriya Janata Dal, a key ally of the UPA, has already gone on record claiming that the government has support of more than 291 MPs. The strength of this statement will obviously be tested in a few hours from now on the floor of the parliament.
Three Possible Outcomes and their implications:
1. UPA wins the vote of confidence
The government continues in power, moves ahead with a civilian nuclear deal with the United States and continues with some of the pending economic reforms (insurance, banking and pension) in the absence of the Left oppsition.
The main reform is likely to involve the insurance sector, raising foreign direct investment (FDI) from the current cap of 26% to 49%. As a matter of fact, Finance minister P Chidambaram had proposed this FDI hike, but in light of Left’s opposition to his proposal, had to backtrack. But once the cap is relaxed, a lot more foreign money is expected to flow in and expand the insurance sector.
The Indian pension sector is totally unreformed at present. The government wishes to create a statutory regulator for the sector and had established an ordinance for appointing a Pension Funds Regulations and Development Authority. But once again, agreement with the Left proved elusive, and the ordinance lapsed. The appointment of a Regulator would set the scene for breaking the monopoly of the Employees’ Provident Fund Organization (EPFO), with which both government and the private sector have to currently park their pension money. A Regulator could permit new pension funds and create the framework for them to operate in an open and transparent environment. In turn, pension funds can vie for government or private sector pension money, offer advice on their best utilization and also give companies and individuals the choice on how best they think their money can be deployed — that is, how much they want in fully secured instruments and how much in the market where returns might be higher but so would be the risk.
Finally, banking sector reforms, that have been hanging, entail allowing the government’s stake in public sector banks to come down below 50%, while raising the current 1% cap on voting rights that applies to all other shareholders in state-owned banks.
It also gives some time to the current government to get organised before a general election in May 2009. But then that would increase the chances for additional populistic and potentially expensive pre election economic measures. These could, for example, include a rolling back of the petroleum price hike initiated in June. It is also worth bearing in mind that the UPA will be indebted to a number of Parties, all of which will no doubt be wanting to make their mark before the general election takes places.
Moreover, even if the government survives this time, it still runs the risk of facing further no confidence motions & uncertainty if the UPA are unable to keep their diverse flock together. Looking back in time, similar types of situation led to government’s that proved short lived. But the comfort in this case probably lies in that fact that unlike in earlier cases the UPA has the backing of a Party as large as Congress.
2. UPA loses the vote of confidence
The government would be expected to resign. If it refuses the President has the power to remove the Prime Minister. In India’s Parliamentary history, no Prime Minister has been forcibly removed. The President could, however, ask the Prime Minister to continue in power as a caretaker government until the next elections. In the two previous occassions the elections were organised within four months after the government lost a no-confidence motion. The Election Commission will fix a date for the General Elections.
Major policy or decision making is very unlikely under a care taker Government since the Parliament would stand dissolved ahead of general elections.
With BJP winning in the major and most recent state elections there might be a perception that an early election could infact favour BJP or the NDA. This is a possibility but nothing is certain. After all history has shown that winning state elections and national elections are two very different things. Interestingly, the issue of bringing down the UPA government has been triggered by the so-called Third Front, with the BJP keeping a relatively low profile.
If the election takes place say by say November, the issue of inflation is likely to remain very hot. Our own forecast sees the headline WPI rate hitting a peak of about 15% in the 2008Q4.
OR a very unlikely scenario ….
The opposition especially the third front (i.e. excluding UPA and NDA which has Congress and BJP as the dominnant parties) could try to form an interim government before the scheduled May 2009 election.
This is unlikely as the third front with the backing of I37 MPs (as per our computations) can’t form a government without an external support of either BJP or Congress or the allies to these parties at present.
….but if that happens
There would be concerns about the stability of the government and their ability to put together a common economic programme/agenda and push it through when the ongoing pact is based upon the single point agenda of bringing down the current government.
3. A Tie
The speaker in Parliament casts his vote to decide the outcome.
In this case, the government would fall unless the speaker, Mr. Somnath Chatterjee, a member of the Communist Party of India (Marxist), votes against his party line and in favour of the government.