MUMBAI, India – Sweeping wins for India’s pro-business opposition party in state elections are being welcomed by investors as a sign that national polls next year will deliver a government capable of tackling the malaise in Asia’s third-largest economy.
India’s benchmark Sensex stock index surged 1.6 per cent Monday to a record high after official results confirmed the Hindu nationalist Bharatiya Janata Party trounced the ruling Congress Party in four heartland states, including the capital New Delhi.
Business leaders are openly cheering on the BJP. Several surveys show overwhelming business support for its prime ministerial candidate, Narendra Modi, reflecting widespread frustration with the ruling Congress-led government’s failure to end extravagant corruption and scythe through a thicket of bureaucratic red tape that has stifled investment.
India’s economy has slowed from an average 8 per cent growth over a decade to less than 5 per cent in the last year, too slow to alleviate the poverty affecting hundreds of millions of people or provide enough jobs for its swelling population.
Investors hope the BJP can do better, given an earlier incarnation as a government that opened markets. They are especially banking on Modi’s reputation for promoting the western state of Gujarat, which he’s led for 12 years, as an industrial haven.
A BJP victory in the elections due by May might also be welcomed abroad. South Korea’s POSCO has been trying to advance plans for a $12 billion steel plant in Orissa state since 2007 and giant U.S. retailer Wal-Mart recently dropped plans to open stores in India because of onerous local product sourcing requirements.
Enthusiasm for the BJP has not been dimmed by recent moves at odds with its pro-business reputation.
The party led street demonstrations last year against opening up India’s huge but underdeveloped retailing industry to foreign investment. A BJP lawmaker recently asked the Supreme Court to block Etihad Airways deal to buy a 24 per cent stake in Indian carrier Jet Airways.
Even Modi’s government in Gujarat this year irked solar power companies by trying to cut their promised fees.
Before the party lost power in 2004, it had long been seen as India’s main business-friendly party compared with the left-leaning Congress. The BJP once championed the reforms it railed against recently and investors believe it will flip back to supporting them if it returns to office.
In India’s fractious politics, “the job of the opposition party is to oppose whatever the ruling party is doing,” said political analyst Sanjay Kumar.
The Congress-led government last year eased restrictions on foreign investment in retail and aviation, hoping to revive growth. But it also dismayed businesses by passing land rights and environmental protection laws that make it harder to obtain land for factories and mines.
Modi’s campaign has pushed his business-friendly credentials, emphasizing a reputation for rolling out the red carpet for business, not red tape, under his leadership in Gujarat. The state’s economy has grown more than 9 per cent a year since 2011 even as the country’s growth waned.
Opponents say that the coastal state with its ports and established merchant class was prosperous long before Modi became chief minister. Gujarat’s continued growth also isn’t unique. Nearby Maharashtra state grew at the around same pace or faster in the same period.
The business community’s Modi fever may be wishful thinking, said Abheek Barua, chief economist at HDFC Bank.
India’s problems are too deeply ingrained to be solved by one man or one party. Even if the BJP were to win a majority in parliament, it would likely be too small to avoid the gridlock that plagues Indian politics. Replicating the red carpet experience for land acquisition and permits in India’s far-flung states would be even more difficult.
“The business community has sort of rallied behind Modi,” Barua said. “Partly because of the attraction of Gujarat and partly because of disgust with the current government’s record.”
Still, many businessmen such as Prem Bajaj are sold on Gujarat’s streamlined bureaucracy.
Bajaj’s appreciation is striking because his plant is one of the 80 solar companies that the Gujarat government is trying to reduce the fees it pays under a special solar promotion deal from 12.5 rupees to 9 rupees per kilowatt hour. The state government says the companies’ setup costs were 40 per cent less than expected.
The state regulator rejected the move, ruling the contracts were binding, but the government has appealed.
Bajaj proposed a 5 megawatt power plant in the state last year and said the approval process was a different world from Mumbai, India’s commercial capital.
There, it can take months simply to get a telephone line, and bureaucrats tend to “put out their hand” to process simple documents. But in Gujarat, not only was he never asked for a bribe, it seemed like officials were eager to help.
“You would show up with a piece of paper you need to get stamped, and the people in the agency knew what it was and sometimes you could be in and out within 10 or 20 minutes,” he said.
“To me, that was amazing.”