Nomura sees only gradual reforms in PM Narendra Modi’s 2nd year as well (1 Jun 15)

The Honeymoon is Over, and the Bloom is Off the Rose

Source: The Economic Times, 1 Jun 15

MUMBAI: With a section of the industry voicing unhappiness over the “sluggish” pace of reforms in the first year of the Modi government, Japanese brokerage Nomura today said it sees no chance of any accelerated reform process in the second year as well due to political compulsions.

“We expect the pace of reforms to be gradual, given the political hurdles around big bang reforms,” Nomura said in a note.

The brokerage, however, said the broad direction for the reform process will continue to be “positive” in the second year as well.

It can be noted that some of the key states like Bihar, Bengal and Tamil Nadu will be going to polls over the next year, limiting the reform appetite as Modi needs to win handsomely in these states to shore up his party’s numbers in the Rajya Sabha, where the ruling front is in minority.

Modi came to power last May in a landslide victory secured on a pro-growth mandate. However, as the government approached its first anniversary, some constituents have been voicing displeasure saying not enough has been done, leading to suggestions of tempering expectations.

Through the work done in the first year and the signals for future, the Modi government appears to be sending a message that “economics will triumph politics,” Nomura said.

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Modi is facing entrenched opposition from the agricultural sector, which employs 60% of India’s people, and under current conditions in India, every single peasant will vote in every available election. It is exactly these people who kept the opposition Ghandi-clan-led Congress party in power before Modi, and were once rewarded for doing that. Those rewards have long since gone by the wayside under Modi, who may be forced to form a coalition with the Congress Party to continue to govern, by the upcoming elections in Bihar, Bengal, and Tamil Nadu, among others. I belive those elections can seriously hurt the BJP in both the Rajya and Lok Sabha, and could bring down Modi’s government.

Matriarch Sonia Gandhi, the de facto leader of the Congress Party, and the personification of Mother India for many, is an exceedingly unhappy camper about Modi, and he may be forced to form a working relationship with her, to maintain himself in power. I don’t believe that “economics will triumph politics,” is a good description of that real possibility. I would say “India will triumph Modi.”

On the whole, I think that Narendra Modi will prevail, but he can only do that by including everybody, and he will be forced to do that by political reality. India is a real democracy, and Modi is by nature a despot, albeit a well-intentioned despot, and one that I tend to like. The Indians also knew that about him when they elected him in the first place. But now they’re going to slap him down so that life can go one for the majority. Such is democracy. It’s a mess, but it works better than any other form of government over the long run.

Avatar Meher Baba ki Jai,
Vishveshwar

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