Is a ‘Third Front’ at Centre bad for economy?

Zee Research Group/Delhi

With Congress claiming to support a non BJP led government at centre in the event of it not getting the right numbers, the precariously placed economy might be in for a serious bout of uncertainty.

Not that a regional coalition at the centre has not delivered robust growth. That was in 1996 to 1998. But the present challenge is to administer the ailing economy with a firm hand driven by some out of box thinking.

The pitch here is not for a particular coalition but for stability and a decisive approach in view of twin challenge of fiscal and governance deficit.

In the absence of a non NDA non UPA alliance ruling at the centre three or four key regional politicians are likely to hold sway. A study of their politics, especially of these parties’ economic outlook as also past track-record, raises grim pointers.

The near term challenges for the next government at the centre would be to adopt a strong policy to improve the growth mix (lower fiscal deficit, improvement in private investment) and stabilize inflation at moderate levels.

However, a cursory look at the economic model of regional outfits through their manifestos doesn’t seem to gel with the wishlist of many investors.

Mamata Banerjee’s Trinamool Congress, which for the first time is contesting from 27 states this time, has shown thumbs down to FDI in multi brand retail and insurance in its manifesto for 2014 polls. In their manifestoes, AIADMK and JDU, two other regional parties with a national aspiration, also reiterate their opposition to FDI in multi brand retail. The view of Samajwadi Party on the issue is not yet clear as the party didn’t turn up for voting in Rajya Sabha. But it would not be happy to be called a pro reform party.

Recently, in order to keep BJP and Congress away from power many regional players have joined hands. However, they are not on the same page to improve the current gloomy economic situation. Consider the divergence:

For instance, in an attempt to control inflation, SP promised to ban forward trading in commodities and keep the selling price of product within 1.5 times of its cost. AIADMK on the other hand in its election document, suggested improvement by reducing imports.

The anti-industry policies of regional parties in states have also kept India Inc under stress. For example in 2013, after waiting for seven years ArcelorMittal scrapped plans for mega steel mill in Orissa owing to the failure of securing land and mining licenses. Biju Janata Dal (BJD) has been ruling the state for the last 14 years.

Similarly, in 2008, Tata Motors withdrew its Nano car project from Singur (West Bengal) after Mamata Banerjee put up a stiff resistance against the then Left government of Buddhadeb Bhattacharjee on the issue of land acquisition for the factory. Manufacturing is a prerequisite for employment led growth totally missing in the UPA charter, at least in its second stint.

This divergence is not lost on the global investing community though it may sink in on the average Indian voter only when they confront frustration at no redemption.

Although regional parties are adamant on forming the next government, yet the brokerages do not seem to be bullish about their innings at centre.

According to HSBC Global Research, “While a weak coalition would have a limited ability to pass reforms, a Third Front could imply weaker growth”. Further, another foreign brokerage firm, CLSA believes a weak third-front government would exacerbate India’s economic troubles.

The argument generally is not against coalitions for they served India well since 1996. It is the constituents of the coalition that pose a challenge today for economy.

While market analysts are not expecting a third-front government, past record of regional parties is not that bad on economic parameters. During the United Front government regime (1996-1998) average GDP grew by over six per cent. This was despite the fact that all Asian countries were affected by the Asian Financial crisis of 1997. The then finance minister, P. Chidambaram, also presented the so called ‘Dream Budget’ in 1997-98.