FocusIndia kicks off month-long general elections

16 April 2009 10:16  [Source: ICIS news]

By Malini Hariharan

MUMBAI (ICIS news)--India kicked off month-long general elections on Thursday that may see the two main national parties struggle to form a stable coalition but that outcome may not have an adverse impact on the business environment, industry sources said.

The ruling Congress party-led coalition appears to lead against an alliance headed by the Hindu-nationalist Bharatiya Janata Party, but both may need the support of a host of smaller regional parties to form a coalition government.

“Politics and the economy are increasingly divorced from each other. India has been progressing well despite having coalition governments for over 10 years,” said a Mumbai-based senior executive from an international petrochemical company.

The industry will be able to manage; Indian companies have found out ways to sort out problems irrespective of which party is in power, he added.

This view was echoed by another executive from a diversified Indian chemical company. “The industry has come to terms with an unstable government. I don’t see the possibility of a single party gaining power for the next 2-3 elections,” he said.

India has been led by coalitions since 1989. And it faced a fractured mandate as opinion polls showed that the Congress Party and the Bhartiya Janta Party (BJP) were unlikely to win a majority vote in the current election which ends on 13 May.

The Congress, which leads the United Progressive Alliance, was favoured by many to retain power. But some also favoured the BJP, which leads the National Democratic Alliance (NDA).

However, election manifestoes of the Congress and the BJP were quite similar which suggested a convergence of thought on issues that matter.

Both have prioritised introduction of a goods and service tax (GST), greater support to the all important agricultural sector through increased credit at low interest rates, creation of more jobs in rural India and acceleration of reforms that would improve security and prevent terrorist attacks such as the one in Mumbai last year. The BJP has also promised a lower tax and interest regime as well as a ban of foreign direct investment in the retail sector.

“Support to agriculture will continue; it is ingrained in the Indian political ethos,” pointed out the source from the Indian company.

Agriculture accounts for 18.5% of India’s GDP and has made a significant contribution to India’s growth story for the last few years. The chemical industry too has benefited. For instance, demand for PVC pipes for irrigation has flourished even as the industry experienced a slowdown in offtake from the construction sector.

Agricultural pipes contributed almost 50% to Indian PVC demand, estimated at around 1.4m tonnes for the year ended 31 March 2009 and projected to grow by over 10% in 2009-10.

But the new government will face a huge challenge in kick-starting the economy, which was growing at its slowest pace in the last six years.  The prime minister said recently that he expected the GDP growth in 2008-09 to fall below the targeted 7.1%.

“We should see the real picture after the elections. The manufacturing and service sectors have been hit [by the global economic slowdown]. The government will have to address issues such as rising unemployment, falling exports and the devaluation of the rupee,” said a source from a second Indian chemicals company.

But the greatest fear for many in the chemical industry was the possibility of a coalition led by a regional party, such as the Bahujan Samaj Party or the Communist Party of India.

“I don't think it will happen but if it does then the country will go down,” said the source from the first Indian chemical company.

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By: Malini Hariharan
+65 6780 4359



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