The new power structure is less stable. Elections are guaranteed within the next 12 months anyway. But a handful of defections could trigger the end of the UPA and that makes the environment even less conducive to long-term planning.
The SP doesn't have ideological hang-ups. It has always been consistent in its commitment to generating return on its investments. That commitment to ROI could lead economic policy in new directions.
The SP has in effect, invested its political reputation to back the UPA and it would clearly like concrete compensation. That compensation can be best described by the umbrella term, "crony capitalism". Friends of the SP will get favours, enemies will be nobbled.
There has to be some urgency about this process because everybody concerned is aware that the government may not be in power for long. We could therefore see some rapid portfolio reshuffles followed up by fast-tracked policy changes.
It is tempting to rail at the immorality of this approach to governance. But that doesn't alter the fact that events are likely to follow this pattern. In the broader scheme of things it will not make too much of a difference.
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India is in a slowdown. Nothing the SP or anybody else does will reverse that deceleration since the factors causing it are outside the government's control. Even if the SP pushes through policies that blatantly favour business allies, those are likely to get chucked out of the window post-election. The loss of continuity will impact long-term GDP growth to some extent but that cannot be helped. It's the way India works.
The SP's induction could in fact, create a narrow window of opportunity. In that sense, the SP-Congress alliance holds more potential for the retail investor. Earlier, the Left wanted policy stasis and an equitable distribution of poverty. That made it impossible for any retail investor to make money off Left-favoured policies.
The SP wants to enable its friends to make money. Since the friends run listed companies, shares of industrial groups favoured by the SP could outperform the overall market while the SP retains its influence. A smart investor might ride the coat-tails of the SP's friends and make some profits.
This would be a short-term opportunity in a market that doesn't have a great deal going for it in the short-term. In the longer-term, skewed policy would see corrections by late 2009 unless the SP stays on as part of the next coalition.
There are potential roadblocks to profiting from this unusual opportunity. One is that litigation is extremely likely if the interference is too blatant. There are independent regulators and draft policies already in place in several industries where the SP has evinced an interest in tweaking the set up.
For example, if say, telecom policy is skewed in favour of CDMA operators, the GSM-wallahs will certainly go to court. In power too, there are norms and regulators in place under the Electricity Act of 2003. That makes arbitrary changes more difficult.
Also if policy changes in say, broadcasting or telecom impact generic low-end consumers and lead to higher costs, the government is likely to get defensive since these are hot-button issues in election year.
If the SP's suggestion that "a windfall profits" tax is imposed on domestic private refiners is carried through and combined to a ban on petro-product exports, private refining activity may simply stop. This would cause a massive fall in the trade balance since India's petro-product exports have to a large extent, prevented the net
POL import bill from ballooning. Again it would be politically messy.
Another potential problem is that most of the businesses where concessions would be useful to friends of the SP are long-gestation. It takes years to generate returns on a power project or a telecom rollout. Businesses are usually cash-negative for far longer than this government can reasonably last.
Despite all these caveats, there could be a selective turnaround in the bearish sentiment affecting certain industrial groups. A cynical and realistic investor may be able to profit from that. You would have to read the signals carefully and time the exit perfectly.