January 14, 2014

INDIA: Rise of 'Common Man' in India Threatens Stability of Government Coalition. Excellent Piece!

Bloomberg News
written by Sharang Limaye, Rakteem Katakey and Siddharth Philip
Monday January 13, 2014

The sudden popularity of India’s anti-graft Aam Aadmi Party is prompting concern at companies such as Maruti Suzuki India (MSIL) Ltd. that this year’s general election will fail to create a stable government.

Arvind Kejriwal’s one-year-old Aam Aadmi plans to contest as many as 300 seats after taking power in the national capital last month, according to senior party leader Yogendra Yadav. That threatens to reduce the chances of the ruling Congress Party or main opposition Bharatiya Janata Party emerging with a majority in the election, which is due by May.

“There is a worry that the AAP might split the vote,” R.C. Bhargava, chairman of New Delhi-based Maruti Suzuki India, the nation’s largest carmaker, said in a Jan. 9 interview. “We’ll have to see what sort of coalitions are formed.”

A weak central administration may hurt the economy, according to drugmaker Dr. Reddy’s Laboratories Ltd. (DRRD), adding a challenge to policy makers already struggling to counter the slowest growth in a decade and Asia’s fastest inflation. Builders Ramky Infrastructure Ltd. (RMKY) and IVRCL Ltd. (IVRC) said they would avoid investments in new projects if decision-making became stalled.

“Industry hopes they don’t play spoilsport for the larger parties,” Saumen Chakraborty, the president and chief financial officer at Hyderabad, Andhra Pradesh based-Dr. Reddy’s, said in a phone interview yesterday. “We need a strong, decisive government at the center.”


Kejriwal, 45, became Delhi’s chief minister after his local campaign, using brooms to symbolize the sweeping away of graft, ended the dominance of Congress in the city.

Aam Aadmi, which means “common man” in Hindi, has withdrawn a decision by Congress to allow foreign retailers to open supermarkets in the capital region, the state’s Industries Minister Satyendra Jain said today. Competition from retail chains that sell multiple brands could lead to large job losses among small local stores, Jain said.

That decision deals a blow to one of Prime Minister Manmohan Singh’s key economic reforms.

Kejriwal tapped rising public anger over the corruption Indians face in their daily lives and claims of graft against Singh’s Congress-led government.

$53 Billion

The national auditor has accused Singh’s administration of costing the exchequer as much as $53 billion through favoring certain companies in the awarding of mobile-phone licenses, and by handing out coal-mining permits without auctioning them.

A series of business figures have joined Aam Aadmi recently. They include G.R. Gopinath, the founder of the nation’s first budget airline, and Meera Sanyal, the Harvard Business School-trained former head of Royal Bank of Scotland Group Plc’s Indian unit. Sameer Nair, who ran Rupert Murdoch’s Star Entertainment India, is also a member.

The swell of support underlines how Aam Aadmi, born out of an anti-graft movement in 2011 that garnered global headlines, has become a wildcard in India’s elections as companies seek a strong new government to help spur growth.

“If it’s an unstable government, it will be a nightmare,” S. Ramachandran, director of business development and corporate strategy at Hyderabad-based IVRCL, said in an interview yesterday. “We have adopted a wait-and-watch policy in terms of new projects. If the new government doesn’t have the numbers to push through tough decisions, or lacks the right vision, we will continue to wait and watch.”

Election Challenge

Aam Aadmi faces the challenge of broadening the party’s appeal to rural areas in the nation of 1.2 billion people. More than 700 million people qualified to vote in the last election in 2009.

“It’s very early days to say that the Aam Aadmi Party will have a big impact on the national elections,” said Shishir Bajpai, a senior vice president at IIFL Wealth Management Ltd. in Mumbai. “It will be very difficult for them to convince the people in rural India.”

The BJP won the most seats in four of five local elections held in November and December in Asia’s No. 3 economy, as voters punished Singh’s ruling coalition over slower growth and surging prices for everything from onions to clothes.

In October, a Times Now and C-voter survey found that the BJP’s opposition alliance would top Singh’s coalition in the general election, with neither winning a majority in the 545-member lower house.

Modi’s Push

Narendra Modi, the prime ministerial candidate for the BJP and the chief minister of western Gujarat state, has contrasted the faltering national economy with higher-than-average growth rates in his state as he bids for power.

“The Aam Aadmi Party’s role on the national stage will be to temper Modi’s aggression and cut the BJP’s vote share, leading to a fractured government,” said N. Bhaskara Rao, chairman of the New Delhi-based Centre for Media Studies. “This won’t be good for the economy.”

Indian consumer-price inflation was 9.87 percent in December, the most in a basket of 17 Asia-Pacific economies tracked by Bloomberg. The central bank forecasts the economy will grow 5 percent in the year ending March, matching last fiscal year’s pace, which was the weakest since 2003.

Bureaucrats unnerved by graft probes and the possible power shift in the general election are delaying approvals for major investment projects, sapping the $1.8 trillion economy.

Even as Aam Aadmi’s rise complicates the election outlook, industry would welcome a greater focus on curbing graft in India, said Goutham Reddy, executive director at Ramky Infrastructure, another company based in Hyderabad.

“In the long run, it will be positive as it will create a level playing field for all,” he said yesterday.

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