The media and political pundits needed the Bihar election outcome to conclude that the Modi wave is now officially over. The Indian markets, however, have been giving this signal for many months now with equities not participating in yet another global liquidity driven rally with the benchmark indices remaining more than 15 percent off their all-time highs.
The Modi bandwagon is clearly in a downtrend. Now the question remains whether it consolidates here or enters a bear market.
Firecrackers did not go off in Pakistan but one certainly hopes that the energy of the Nitish-Lalu wave will wash away some arrogance of the top BJP leadership, especially the Modi-Shah duo. If lessons from the Bihar loss are learnt quickly, one can expect the Indian bull run to continue as we could then expect their focus to return on policies which actually matter for the economy.
Whether or not it is within the scope of a credit rating agency like Moody's to comment on India's "ethnic tensions" is not important. The fact is that these aspects are now on the radar of global investors and financial institutions. One or two more research notes highlighting the rise in communal tensions by say a Goldman Sachs or a Morgan Stanley in the near future will really batter down India's image in the financial markets.
The latest quarterly earnings season has been disappointing to say the least. When you have the country's largest infrastructure player (L&T) and the biggest private bank (ICICI) trade near their 52-week lows, it surely paints a grim picture on the ground. If oil prices were to rally $10-15 from current levels, our inflation and CAD readings would be badly hit. India already has a very low weight on the MSCI and any downgrades from its current overweight stance would really make one wonder on who wants to own India Inc now?
The BJP must now also start focusing on the social sector. Remember, it was the rural demand which held up India's real economy during most of the 4-5 years following the financial crisis. The Bihar pounding is also a result of the NDA government's total neglect towards the social sector.
If the two flagship schemes of this government - Jan Dhan Yojana and Sansad Adarsh Gram Yojana - are an indication of the vision of this government for rural development, then there are justifiable reasons for the rural electorate not being content. They completely lack an indication of budgetary commitment to meet welfare priorities. Further, though the government has articulated an intent for "housing for the poor" there has been no commensurate action of increasing the budgetary allocation for rural housing or even demonstrating an action plan for achieving it.
There have been no efforts undertaken by government that launched the SECC data to illustrate how it will use this to better target welfare provisions in favour of the poor. The "sabka vikas" slogan has been shown its place by this election, which was the first time a state with a substantial rural population was voting after the 2014 mandate.
The message is clear Mr. Prime Minister: polarisation will not win you elections. You need to save the secular fabric of our country first, then the economy. The focus must be on development and governance alone. You are still the best hope for India's long term economic future but a total rebranding of your politics is needed even if it comes at a great political cost.
(Vatsal Srivastava is consulting editor with IANS. The views expressed are personal. He can be reached at vatsal.sriv@gmail.com)
