18. The scenario now and the task.
• Congress is facing an existential crisis.
• The regional parties are under pressure.
• India gets a one party government after a
quarter of a century.
• Single party government with a strong
leader, but without a big mandate.
• The fate of the ruling party in the next
elections is decided by the index of
opposition unity. How to keep them
divided?
5/22/14 MG 18
27. The four critical areas to focus on are fiscal belt-tightening, improving
the business climate, complementing anti-inflation efforts and
sustaining the improvement in the current account deficit.
The deficit is forecast to come in at around 4.6 percent in the 2013-
2014 financial year ended in March 2014, down from 4.9 percent in
2012-2013 and 5.8 percent in 2011-2012. This is significantly higher
than China, for example, which recorded a fiscal deficit of 2.1 percent
of gross domestic product (GDP) last year.
If the government chooses to expedite capital spending to orchestrate
a cyclical turn in the investment cycle and boost long-term growth,
the short-term casualty will be the debt/gross domestic product ratio,
Improving the business climate should be the anchor of the new
government's agenda.
The Immediate Economic Priorities.
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28. The Modi government, even with its majority in
Parliament is vulnerable because of its low popular
support.
It must expand its support base to survive in 2019.
It must deliver on its high expectations. Another 100+
million new voters will join the queue in 2019.
Capital resources are its main constraint. In the pursuit of
this, it cannot afford be country shy.
It will need to undertake big ticket infrastructure projects
to boost economic growth, create jobs and expand
industrial base to get back to a 8+% trajectory.
The Policy Imperatives .
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29. Political Economy Constraints.
• The Modi government will be driven by its economic and
development agenda.
• India is straining to expand its domestic Savings/GDP ratio, which
has been declining in the past few years.
• It has evolved into a high subsidy regime in the past decade and it
will be difficult to roll back on this, given the slim mandate of the
Modi government.
• It will seek closer relationships with countries it can realize capital
inflows. Only two countries are capable of meeting India’s needs
with capital and technology. Japan and China. But Japan is not
entirely a free agent.
• India’s traditional strategic autonomy considerations will condition
it not to get into any strategic relationships.
• While the USA is an important player in geo-strategic terms, it is not
capable of the volumes of investment India needs. The USA is
habituated to being intrusive.
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30. Political options available to the BJP.
• It is capable of hard decisions, both because of the
temperament of Modi, but because it is a right wing
government.
• It can take a pragmatic approach to the India-China
impasse on the border. A BJP led government was the
one which finally recognized Tibet as a part of China.
• BJP is uncomfortable with Dalai Lama and Buddhist
expansion in Himalayan region.
• It will be driven by its economic and development
priorities, and hence most likely to compromise for
these goals.
• It can reset India-China relations.
5/22/14 MG 30
