BackWhy markets are worried about upcoming Bihar elections
Irrespective of what happens in Bihar, what is required at this stage is that markets adjust expectations in line with ground realities
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The 2015 land bill has now been deferred to the winter session of Parliament. The parliamentary panel which was reviewing the bill has asked for yet another extension. It is being argued that this contentious bill has been deferred because of impending state assembly elections in Bihar. Election in the state will happen around October-November, which has been reportedly termed as “mother of all elections" by Chief Election Commissioner Nasim Zaidi, and this is why Patna politics is beginning to affect thoughts from Parliament Street to Dalal Street.
Analysts at Emkay Global Financial Services Ltd, in a recent report, beautifully deconstructed the possibilities and stated the importance. “The upcoming Bihar assembly election… is significant for many reasons and is possibly an occasion for the BJP (Bharatiya Janata Party) to revive the (Narendra) Modi wave, following the big dent it faced in the Delhi elections. As in the past, it is still believed to provide succour for sustaining market optimism, which has scaled new highs despite failing earning expectations over the past 12 months," said the report.
Both domestic and foreign investors have been buying stocks in the Indian market with hopes of economic reforms that will improve business environment and result in better earnings prospects for listed companies. While investors still remain largely optimistic, problems that the government is facing in getting legislations passed might affect confidence in the future. The monsoon session of Parliament has been a complete wash out. Therefore, everyone is now looking at Bihar elections and the possible consequences of its outcome. Winning assembly elections in large states such as Bihar is also important for the BJP-led National Democratic Alliance (NDA) as it will help improve its strength in the Rajya Sabha, where it is in a minority.
In the 2014 Lok Sabha elections, BJP got about 30% votes in Bihar and won over 50% of the seats. NDA bagged 31 out of 40 seats in the state. Therefore, the outcome of the assembly election will be seen by many as a referendum on the popularity of the Union government. It is also being argued by many political and market analysts that the outcome will have implications on the ability of the government to carry out economic reforms, though such claims can be contested.
The complication in the political environment has emerged because of realignment of political forces in the state. The incumbent Janata Dal (United) led by Bihar Chief Minister Nitish Kumar has formed a rainbow alliance with Lalu Prasad’s Rashtriya Janata Dal (RJD), the Nationalist Congress Party and the Indian National Congress. Therefore, the political reality has changed significantly since the Lok Sabha elections. And the reason why everyone from Delhi to Mumbai is anxious is that this new alliance, going by the vote share of 2014 general elections, has an advantage over NDA. Further, Kumar is seeking re-election on the basis of his track record of 10 years in office and the NDA, as of now, doesn’t have a candidate for the top job in the state. However, drawing conclusions based on past performance can be dangerous, both in the stock market and in politics. Things can change dramatically as we get closer to actual polling; results in the past have surprised the best of political minds.
As things stand today, the fear is that a loss for the NDA will affect the morale of the government, which will in turn impact decision making and, as a consequence, economic growth. It is also being argued that politically, the outcome of the Bihar election will have an implication on elections in Uttar Pradesh, the largest state in India, which goes to poll in 2017. Both these states contributed roughly one-third of the total seats won by the BJP in 2014.
So, are the concerns on the street valid? To an extent, yes, as it can affect the ruling alliance psychologically in the short run. But, ideally, the outcome of a state election should not affect the performance of the government at the Centre. It has been elected to office with a clear mandate and agenda which cannot and should not be tested every six months.
Moreover, in the five-year term of the government at the Centre, a full cycle of state assembly elections will be completed and, naturally, the ruling party will win some and lose some. The real reason why markets and analysts are worried is because of the inability of the government to get crucial legislations passed in time. But the problem that the government is facing in Parliament is of its own making and state elections have no role to play.
In fact, contrary to popular perception, we had a good budget session just after the BJP lost assembly elections in Delhi. The basic issue is that markets overestimated the government’s ability to get legislations passed, given the majority in Lok Sabha. On the part of the government, taking the ordinance route to change laws, particularly on land acquisition, was a mistake. This united the opposition and made life difficult for the government. Anyway, the government never intended to go for big bang reforms and opted for incremental change. Also, a lot can be done and is being done on the executive level.
Therefore, irrespective of what happens in Bihar, what is required at this stage is that markets adjust expectations in line with ground realities and the government will have to finds ways to improve ease of doing business in Parliament. Meanwhile, in Bihar, after a long time, political parties on both sides are talking about development, at least on the record.
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