Saffronomics '98

So while prime ministerial candidate Atal Behari Vajpayee says the BJP doesn't mind foreign insurance companies, provided they do crop insurance, others in the parivar see red as soon as the topic of increased foreign presence in the financial sector is mentioned. While Jaswant Singh, who could be finance minister if the BJP makes it to Delhi, endorsed much of the liberalisation process last fortnight at a CII convention in Chennai, Swadeshi Jagaran Manch (SJM) convenor S. Gurumurthy abhors what he sees as one of the principal upshots of the reforms: "the marketisation of India".

The BJP's economic agenda is getting cloudier due to the compromises it is having to make to broadbase its appeal and keep its electoral allies happy. Surely there is nothing in common between the shrill protectionism of the Samata Party's George Fernandes, and the gung-ho personal-wealth pragmatism of the Akali Dal.

In the meantime, as the BJP's manifesto committee works on the booklet—expected release date: January 28—the party also has to turn on the heat on the way the Congress and UF governments have handled the economic reforms for the last six-and-a-half years.

But, underneath the election-time forked-tonguespeak, there appear to be a few beliefs that the BJP is loath to jettison. Though, how much a BJP-led government, with the BJP short of absolute majority by itself, will—or will be able to—do about these beliefs, remains to be seen.

For example, all hues of saffron are united in their rejection of the World Trade Organisation (WTO), the global trade regime that demands the slashing of trade barriers and the unhindered flow of capital across the world. The BJP is emphatic that if it comes to power, it would join forces with other like-minded Third World nations to lobby with the WTO against current provisions freeing cross-border investments from regulation.

Says Jay Dubashi, part of the party's economic thinktank: "We don't like the way the entire WTO thing has been done right from the start." Concurs Jagdish Shettigar, also part of the economic cell: "Our negotiators let down the country badly, they had their own selfish ends in mind." Says Gurumurthy (see interview): "The global trade regime is only a perception and not a practice of free trade. In reality, massively managed trade is taking place. India must look after its own interests."

The opposition to WTO stems from the belief that India is not ripe for foreign investment in all areas, insurance being one of them. Further, WTO or no WTO, the BJP rejects the provision that there should be no political boundaries to the flow of investment. So, for example, while the party is willing to allow private companies into the insurance sector—"we would not like government monopoly in any sector," says Shettigar—no foreign investment would be welcome. In spite of what Vajpayee may have said.

Part of the party's economic ideals also germinates from the fact that some foreign companies have bought market share rather than worked for it. Says Dubashi: "When Coca-Cola came here, when Pepsi came here, they destroyed the entire soft drink industry.Today there is no Indian industry, all of it is foreign." But what does the government do when there is a Ramesh Chauhan willing to sell off? "Why did he sell? He was under pressure," shoots back Dubashi. "I would not have given permission to Coca-Cola to come in." Shettigar agrees that FDI is welcome only in well-defined areas: "India is not there to protect the interest of foreign investors, whether FDI or FII. We are supposed to protect our own interest."

But the party leaders are clear that the Enron case will not be repeated; now that these companies are here, they will be allowed to carry on their business. In spite of Gurumurthy and George Fernandes. In fact, Vajpayee has already taken credit for the Enron deal, which was finally passed by his 13-day government. The former PM takes pleasure in pointing out that since then, in the last 18 months, not a single private power project has been cleared. Talk about irony!

But the party's got on to the FIIs' case. After the recent BJP conclave at Bhubanesh-war, Vajpayee said that foreign investment in the Indian stockmarkets was welcome,but there should be a lock-in period of 2-3 years; the FII would not be allowed to take the money out of India for this period.

But this goes against the very definition of the global investment market, which is fuelled fundamentally by the ease with which money can be shifted across the world to places where returns are higher. If the BJP insists on this, every FII would surely be packing its bags? Dubashi and Shettigar are not yet ready with the details. But according to both, the BJP would like to keep FIIs on a tight leash. "Let us not use the stockmarket as a gambling joint," says Dubashi.

M.G. Damani, president of the Bombay Stock Exchange, is one person who agrees with all this. "I totally subscribe to the view that foreign investment should be allowed guardedly. Foreign investment should be allowed in high technology and not for something which can be made as well by Indian entrepreneurs." Says Rahul Bajaj: "If the BJP comes to power, it will be very much better for Indian businessmen. They are as pro-liberalisation as I am, but I think the BJP's policy will prevent foreign majority control." Bajaj is happy with that.

In the meantime, the BJP feels there's no shortage of revenue within the country too, provided the government shows some commitment. "When you consider the flight of capital and the scale of tax evasion, it is clear that there is no shortage of revenue," says Shettigar. And Dubashi feels that 10 per cent of the population should be brought in the tax net over the next five years.

An increase in revenue would help the government maintain the levels of capital expenditure, according to the party's line of thought. It is the reduction in capital expenditure that has resulted in growth rates having come down. Dubashi says capital expenditure should be increased along with the revenue collections with the result that the fiscal deficit can be kept to manageable levels.

But let's go back to the saffron contradictions. Those in the party who sport a lesser shade of saffron, say that the SJM's words do not carry much weight with the BJP. "Their views are at times bargaining positions," admits a BJP leader. He adds that though the SJM would like its commitments to be accepted by the BJP, it cannot be forced upon the latter.

Interestingly enough, analysts who are looking at India from a distance aren't worried. When contacted, Professor Jagdish Bha-gwati, the eminent Columbia University, US-based economist was not fretting about the BJP not allowing majority foreign stakes in companies. "India is rich in terms of local partners," he says. "We have enough private sector entrepreneurs and local skills, so I believe the BJP could get away with such a policy, as long as they open up more sectors to foreign investment." But is that likely to happen? Says Joydeep Mukherji, Washington based rating analyst at Standard and Poor's: "I don't see much difference in the economic agendas of various political parties. The BJP was very pragmatic in the way it has governed in the states and I believe they would behave similarly if they came to power in Delhi. They make contradictory statements on reforms because their own supporters are divided on the issues."

Foreign investors may be looking for, above all, a stable government. Says the London-based manager of a US fund with major investments in India: "I don't think investors here have any views for or against the BJP as such. If the BJP can come and deliver a five-year government, that would be good news, and right now, they seem the only party capable of doing that. That is what makes the BJP attractive. I don't think anyone in the market has an ideological position on this."

 "I don't think the BJP can or will reverse the reforms," says Mukherji. But what about the fact that the BJP seems committed to not allowing any more foreign investment in the consumer goods sector (and if George Fernandes has his way, it could be the second going of Coke from India)? "We do not see the BJP rolling back the liberalisation programme," says the London-based fund manager. "At the moment, when large-scale infrastructure investment is the issue, any decisions on a few consumer goods will not swing anything one way or the other." Says Till Becker de Freitas, CEO of Mercedes-Benz India, a company that manufactures both a consumer good and a luxury one, so apparently anathema to the BJP way: "One is not afraid of a major change in politics. I think the opening up of the Indian market will go on and must."

 So whatever the BJP wants, the responsibilities of governance could force it to act totally differently. And that is a problem it will have to live with, if it ever comes to power.

With Hanno Kuntz in New Delhi, Shekhar Ghosh in Mumbai, A.S. Paneerselvan in Chennai, Ludwina Joseph in Washington DC, and Sanjay Suri in London