Finals Are In 2016; Next Year Is Just The Semi-Final

Last time I said it, it sounded like a terrible cliche. But, the six months that lie between now and the general elections scheduled for March-April 2014 do indeed seem like a lifetime. And, despite the fact that a major indicator -- results of the elections to four state assemblies in November and December, 2013 -- is still in the works, some indications of the April 2014 hustings are already acquiring a distinctive shape.

So here is the prognosis (and I reserve the right to update it as the months roll out): 2014 will be more like a semi-final and the final will be played out only in 2016. Which means the new government -- whichever combo it is -- will not survive for too long. It will be done in by its own inherent contradictions, much like some of the previous short-lived formulations.

There is a piece in FirstPost already hinting at it (read it here) also, though the overall thrust of the piece is about the souring relations between the Gandhi family members and prime minister Manmohan Singh. But, we've already covered it in an earlier posting about how and why the ordinance was canned by Rahul Gandhi.

So, why am I expecting an anti-climax in 2014?

Look at it this way. Narendra Modi and his followers are desperately trying to convert the elections into a presidential format -- an exclusive battle of wits between him and Rahul Gandhi, or NaMo versus Raga, somewhat like the next highly-billed heavyweight bout at Las Vegas. BJP hopes this format will help it iron out some of the wrinkles presented by a fractured Indian polity, notably the rise of regional parties and coalition politics of the past 20 years. From all available accounts, the Modi camp wants at least 200 seats and the only way to go about it is to pitch him mano a mano with the leader of the ruling party.

Narendra Modi (left) and Rahul Gandhi (Photographs courtesy PTI Photos)

Yet, too many regional issues might still take precedence. For instance, the Telangana-Seemandhra fissures will surely be priority Number One for the Andhra voters, Delhi be damned. So, despite Chandrababu Naidu hitching his wagon to the NaMo star early in the race, Jagan Reddy might be holding most of the aces. In Bihar, while Lalu has been put away, the usual concerns of poverty, lawlessness, entitlements, etc will still dominate the campaign rhetoric. Uttar Pradesh will be battling the after-effects of the Muzzafarnagar riots. Post Phailin, voters in Orissa are still picking up the pieces. Mamata will bring a number of MPs from West Bengal to the negotiating table, even if they're a diminished lot. In Maharashtra, Raj Thackeray's MNS and Sharad Pawar's National Congress Party are both gearing up to corner as may negotiating chips as possible.

These factors have already been put into play and the BJP's attempts to turn this election into a NaMo-versus-RaGa spectacle might not yield any dividends. At least, not yet.

Congress, on the other hand, leaves behind a terrible record of governance. Their feeble attempt to win votes through the cash entitlement route can be a winner but not if some other narrative overwhelms it. And, BJP is trying to do just that with its unwavering focus on corruption during the UPA years. Congress has also conveniently found its straw-man in Manmohan Singh, and is fervently hoping that RaGa's family connections (hence his continuing references to his father's and grandmother's assassinations), his faux earnestness and his boyish charm will win the day.

However, both NaMo or RaGa will have to contend with a number of regional satraps with increased negotiating power. Expect a flurry of post-poll arrangements, tie-ups, understandings. And, this is likely to erode the decision-making powers of whichever government occupies the corner office. This is not an altogether welcome development, given that the country is looking forward to some decisive actions, some measures that will help nudge the economy back into growth mode.

Alongside, expect prolonged and public bickering over who gets which ministry. Most political parties still view governance as an entitlement to loot. This is evident from the fact that most leaders have inducted their sons and daughters as their successors. This rather unseemly squabbling over fish-and-loaves of office will also be another reason for the dissolution of the government in power.

On to 2016 then. In the meantime, enjoy the show. And keep an eye on that chap called Arvind Kejriwal. He seems to be just warmin' up.

When The Postman Knocks...

Finance minister P Chidambaram recently stated that Reserve Bank of India is likely to issue licences to seven new banks (read here). A total of 26 applicants had applied to be awarded banking licences. The FM's comments have immediately sparked off a guessing game about the identity of the lucky seven. 

We are loath to give up an opportunity to speculate; we will therefore definitely hypothesize about the lucky seven. But that is for a later posting. For the moment, let us focus on another important aspect. Mr Chidambaram also said that these new institutions should strive to create new banking templates and not follow the business model adopted by the existing, new-generation, private sector banks. One tends to agree with him, though the scope for innovation in the Indian financial sector does seem quite limited, what with the numerous regulatory and political obstacles erected for banking operations.

Whatever be the message, one only hopes that the FM's imprimatur of avoiding clones doesn't force the central bank to grant a banking licence to the postal department. The postal department is claiming that its massive network gives it access to almost all corners of the country, including large areas which go either unserved or under-served by formal banking practices. While the postal department is undoubtedly the only organisation with the largest physical presence in the country, is that a necessary and sufficient condition for granting a banking licence?

This is not to say that the postal department hasn't done a great job. The postal department has played a stellar role in stitching disparate parts of the country into a cohesive whole, managed to reach the earnings of migrant workers from one corner of the country to their families in another corner, tended to the fires of communications across languages and regions, and much much more.

But does all this still qualify for a banking licence? I don't think so. I had earlier written about it in a guest column for magazine Outlook (read here). 

Political pressure forces the postal department to sell most of their products below cost of production, thereby painting the bottom-line luxuriantly red and requiring infusion of fresh funds from the government every year. This is the main reason why the postal department should not be given a banking licence. The postal deficit for the past two years and this year's budgeted deficit are given below (in rupees crore):

2011-12            2012-13               2013-14 (Budgeted)

5716                  5838                       6717

The government, as things stand, needs to infuse large doses of capital into public sector banks every year (Rs 16,000 crore has been earmarked for government owned banks and financial institutions during 2013-14). Therefore, adding another colossal institution which is likely to absorb large amounts of cash every year is diverting additional amounts of the government's limited resources, which could be better used for development purposes.

Postal departments in many other countries launched banking services at various times in the past -- such as, Deutsche Postbank in Germany (which is now owned to the extent of 94% by Deutsche Bank), Japan Post, Postbank N.V. in The Netherlands which has since been acquired by ING Bank, POSBank in Singapore which has been bought over by DBS Bank. The lesson from the above examples is clear -- all the postal banks had to be acquired by private banks. The two exceptions might be China -- The Postal Savings Bank of China -- and Brazil's postal services, which had to tie-up with a private bank (Bank of Brazil) to gain access to financial products and  services.

With such a wealth of experience available globally, a rethink might be necessary before allowing India Post to diversify into banking services. An alternative strategy would be leverage the same network to allow marketing of third party products.

The Ordinance Gambit: Strategy Or Tactic?

All in all, Congress must be licking its chops for seemingly executing a neat political strategy. But there could be some deleterious collateral damage lurking in the shadows. It now turns out Manmohan Singh will have to become the fall guy for having persisted with an ordinance that allowed elected legislators with criminal convictions to continue in Parliament.

For those who tuned in late, the Cabinet passed an ordinance on September 24, 2013, called Representation of the People (Amendment and Validation) Bill, 2013. The ordinance sought to negate a Supreme Court ruling of July 10, which said that legislators would be disqualified immediately if convicted by a court for a sentence of two years or more. The immediate concern for rushing ahead with an ordinance – instead of waiting for Parliament to reconvene – was apparently the imminent sentencing of RJD chief Lalu Prasad Yadav (an important ally for Congress ) and Congress politician Rasheed Masood. The BJP – which was ambivalent initially –  weighed its assets against its criminal liabilities and figured opposing the ordinance made more sense.

Then as suddenly as the ordinance was sprung on an unsuspecting public, Congress vice-president Rahul Gandhi parachuted into a press conference being addressed by Ajay Maken and announced his displeasure with the ordinance. He called the ordinance “a complete nonsense” and suggested that it be “torn and thrown away!” There was a collective gasp from across the country because this comment was made when the prime Minister was in USA. As soon as he returned, in a show of amazing alacrity, the same Cabinet withdrew the ordinance on October 2. (for a complete chronology of events, read here)

Manmohan Singh & Rahul Gandhi in happier times. Pix courtesy of AFP

What does all this indicate? Here are a few stray thoughts and my take on the entire episode:

* This was a deliberate ploy. It was planned and executed to make Rahul Gandhi come out smelling like roses. The casualty will be the Cabinet members, who are all older than the young party vice-prez. The upshot, as Congress poll managers would want it to appear: the geriatric Cabinet wanted to protect status quo but the vigilant youth forced the change.  This hypothesis seems credible because one suddenly noticed Congress party lightweights, considered to be members of RG’s charmed circle, openly tweeting against the ordinance even before the dramatic press conference (read it here). It seems unlikely that, under normal circumstances, they would have had the gumption to openly criticise an ordinance cleared by the Cabinet. Unless of course they had instructions from somebody senior in the party.

* The party went ahead with the ordinance in the belief that all parties would support it. But, with elections so near, BJP stole some of the television thunder by publicly venting their ire against the ordinance. They even met the President to express their disappointment with the proposed legislation. Public mood seemed to be turning against the ordinance; there were rumblings within other political parties too. Civil society was agitated. Sensing that the mood was turning, Congress must have decided to turn the liability into a show of virtue.

The collateral damage could be Manmohan Singh who comes out of this episode looking rather sheepish and servile. He also emerges as a political relic, charging down the road with a legislation that favoured a venal brand of politics. He is also likely to be branded – subtly of course – as the man who was responsible for wrecking the economy and somebody who now must make way for the impatient and ambitious youth.  This is unfortunate and undeserved for MMS – it's like a bum ride into the sunset for somebody who went through public life with his probity and value system intact.

But there could be one proverbial fly in the ointment – the deliberate slight to Manmohan Singh still raises issues about dynastic politics. This may not go down well with young voters and, as sure as the sun rises from the east, the Opposition isn’t likely to let this opportunity slip away. In the end, it will be interesting to see who and what influences the young finger on the button.