Good news on economy is bad for BJP’s election prospects, Indian economy, News on economy, BJP, NDA, lok sabha election 2014, latest news, political news 2013.

Good news on economy is bad for BJP’s election prospects.

Here is a bit of news that may unsettle the BJP. The Indian economy is finally looking up. The current account deficit for April-June came in at 4.9 percent of GDP, wider than the previous quarter. But indications are it will improve and the government is reasonably confident that it will be below the targeted $70 billion.

The government has also said that it will stick to borrowing schedule, raising hopes that Finance Minister P Chidambaram will pull out all stops to contain fiscal deficit within the target. There is an improvement in exports and foreign institutional investors are also returning to the Indian markets.

They  net invested $1.12 billion in the Indian markets in September, reflecting a reversal in their approach. In August, they were net sellers of $2.5 billion worth of Indian assets. Captains of Indian industry are acknowledging the fact that the government has taken steps to change the situation on the ground. In a recent interview to the Economic Times, Aditya Puri of HDFC said this in as many words.

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“I think despite elections being round the corner, in the last two to three months the government has been doing a good job,” he said. “I am not saying this as pro- or anti-government. They have looked at seeing how we can get more foreign currency. They are looking at how to improve exports,” he said. True, there is buoyancy in exports.

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In July, exports were up 11.6 percent and in August 13 percent. The Federation of Indian Export Organisations (FIEO) expects this to get even better. Echoing Puri’s words is Sunil Bharti Mittal. “The government has done a phenomenal and job in creating clarity on a lot of issues. It is for the private sector and foreign investors to respond to what the government has done,” he has told the ET today in an interview.

The improvement in the current account deficit (CAD) situation is boosting investors’ confidence. Puri says the mood among investors at a meeting he attended in Hong Kong was far better than what he witnessed two months back.

They have taken note the government is taking steps to change situation on the ground. The general feel good factor has pulled the Indian rupee back from the brink. It is now at 61.85 against the dollar, about 11 percent higher from its life low of 68.8 hit in August. Experts do not expect the currency to fall back to those depths even if the US starts tapering its bond buying in the near future because of the steps taken by the RBI and government.

As Ajay Shah points out in this Firstpost article, “…in a place like India, a big CAD generates greater accountability on the part of the government. One would predict better economic policy when there is a large CAD.” This is what has happened. The problems have helped the minds focus on solutions. And they are in place.

Why BJP should worry An improvement in the economy should worry the BJP because their attacks on the Congress and the UPA were mainly focussed on poor growth and  economic indicators in the doldrums. BJP leaders have been charging that when they handed over the reins to the UPA, the economy was growing at 8.4 percent.

The UPA’s rule has pulled this down to just above 4 percent. The rupee’s fall to life low of 68.8 against the dollar just gave them a chance to raise their pitch. Leading from the front was BJP’s prime ministerial candidate Narendra Modi. “There was a time when Indian rupee was making lots of noise. But today it has lost its voice.

And similarly we are unable to hear the voice of our Prime Minister. Both have turned mute,” he charged at a function in Saurashtra. In its bid to cash in on the negative sentiment stemming from the rupee’s decline, the BJP leaders forgot that there were global factors too that contributed to the fall. As is the case with their criticism on the UPA’s economic growth record.

The fact is that growth had fallen globally during the period. Interestingly, the BJP leaders are continuing their barb on the rupee fall, despite some of the industry veterans expressing relief that things are changing for the better. “The rupee has lost its power, if this continues, tomorrow we might have to look for the rupee through a microscope,” Modi said last week.

This raises the doubt whether there is a desperate attempt to trash the economy because of the perception that a bad economy will translate into votes for a change of mandate in the next elections. Modi’s comment that toilets are more important than temples has to be seen in this context.

Christopher Wood, Chief Equity Strategist of CLSA once said, Modi is the only hope for the Indian markets. He also said deeper the sense of crisis, the better Modi’s chances of winning. By that logic, a good economy may also spoil Modi’s PM prospects.

source:firstpost.

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