Election results in India and what it says for the future of the IT industry of the country
By
27 May 2009
Everyone yet again agrees that the Indian voter is wise, mature and rational. After making all sorts of predictions prior to the elections that went way off target. This is exactly what had happened five years ago in June 2004.
Even if it thought it would regain power, the United Progressive Alliance (UPA, led by the the Indian National Congress party) was clearly awestruck at the enormity of its success. And even if the National Democratic Alliance (NDA led by Bharatiya Janata Party) thought it would somehow scrape through, it was shocked at the manner of its defeat. Experts sat again and tried to gamefully salvage pride by denying what they had predicted earlier. Some have been graceful enough to admit they goofed. When after the results came in, we agreed that the voter has come of age and was no longer swayed by narrow and trivial interests.
However, we forgot all these accolades to the citizenry when we prepared for elections 2009. Analysts showed how people would vote along caste lines and on traditional grounds. The results disprove much of what was assumed. Why is it then that our political observers and some are indeed astute, make these mistakes again and again? Will they again use the clichés in the next election? Do they need simple lessons in statistical analysis, on spurious correlations and generalisations, on confounding variables and on type two errors?
Three issues
In this election, there are three issues I would like to highlight, as mere examples of errors analysts make when trying to predict the voting behaviour of a few hundred million people across a huge country.
Firstly, the vote bank issue. The vote bank unfortunately is a much misunderstood term. The Sociologist M N Srinivas, who coined this term, would shudder to see what the term is used for these days. When he spoke of vote banks, he was talking of dominant individuals who would have the personality and the power to persuade groups of people to vote for an individual or party.
Vote banks that Srinivas defined were generally geographical and confined to localities or villages where voters went by what their headman or the chieftain decided. This term has been mauled now and our political analysts use this term in contrast to talk of voting patterns among dispersed communities across cities and states. To add to their problems, they then use small and irrelevant samples to substantiate their claims that the Brahmin vote bank, the Thakur vote bank and the Muslim vote bank is at work in getting a party or an individual elected.
Second is the issue with the nuclear deal with the US. The Left parties opposed the deal because they thought it was a dilution in our foreign policy of non-alignment. In an era where there are no super powers, when economic globalisation determines geopolitical alliances, this discourse sounded so very out of tune. Others who opposed the deal did it for what were considered sound political concerns. The BSP (Bahujan Samaj Party) imagined that the Muslim vote bank strongly opposed the deal. It was only the BJP that opposed the deal for no reason whatsoever.
What we saw was that the nuclear deal was given the place it deserved. It was a simple treaty that gives the electricity sector one more alternative to Hydel and thermal power. Once the environmental issues are tackled, it serves as a neat means of providing a few more megawatts of electricity to a nation challenged by huge shortages in power generation. The Muslim vote bank was supposed to sense sinister designs on the part of the US in signing this deal. It was in some weird manner supposed to be the precursor to the US wreaking havoc on Iran and emboldening Israel. The voter, by all indications, simply ignored this sophistry.
Thirdly, the issue with our neighbours. Tamil Nadu was supposed to vote on developments in Sri Lanka. The Tamil voter was, according to a lot of experts, watching the scenario building up in Colombo, and was not going to spare the Indian politician who would appear to be neglecting the Eelam issue. The Sri Lankan army launched a blitzkrieg and the Indian state did not intervene in what was indeed an internal affair aimed at bringing stability and ending another terror machine. The voter again did not disappoint and instead voted for what were issues clearly closer home.
On the western front, Pakistan went from bad to worse. The Indian state reacted in its own unique style. It ensured the democratic process in Pakistan did not get damaged, but went about systematically isolating the country in the world arena. Putting unprecedented pressure on allies and foes, India succeeded in many ways in focusing global attention on terror in various areas and therefore the state machinery there would eventually go on a strong offensive against terror factories. The Muslim voter in India was supposed to react angrily and vote against this arm twisting. Once gain the infamous vote bank ignored this and voted in favour of the party responsible for having worked hard in forcing Pakistan’s hand to act decisively in its terror-affected areas.
Good governance pays
The simple truth that emerges is that good governance pays. Individual members of parliament were re-elected in constituencies they respected. The Shining India campaign worked against the BJP last time that talked of their achievements in the five years in power then and tried to brush existing problems under the carpet. It was the same consistent growth that won the election this time for the Congress, which only fine tuned the Shining India campaign a bit and focused more on inclusion than on growth. The party, however, did not fail to underline the five years of steep economic success, while acknowledging the poverty that needs to be tackled and the recovery that needs to be catalysed.
Pro incumbency and anti incumbency are only excuses. Those who work hard, and sincerely, get rewarded. Delhi, Andhra Pradesh, Bihar, Chattisgarh and Orissa are clear examples. Governments that fail to deliver get punished and this is what happened when people voted against ruling parties in Punjab, West Bengal and Uttaranchal. As with every rule there is an exception, and that is Gujarat.
Impact on the IT industry
The IT industry is waiting with bated breath as their 10-year tax holiday is ending this year when the Special Processing Zone scheme closes in 2009. What will the government do now? Will it continue to subsidise a 40-billion-dollar industry and allow it to get away without paying taxes? Or will it succumb to pressures from the influential lobby and extend the tax holiday?
This has an immediate issue and concern associated with the drama that happened with Satyam. While there are various reasons for the debacle, one important policy issue is that Satyam could get away with its fraud in inflating profits year after year because of the same tax holiday. It allowed the firm to inflate profits without having to pay anything for declaring high profits. In a situation where there is a clamour for taxing agriculture that hasn’t been taxed for 100 years now, it will be difficult to avoid taxing the IT sector.
But will this lead to a cost disadvantage for investors in the IT industry? Will this also encourage IT firms from the US and Europe to look elsewhere when setting up offshore units? What is for sure is that there are a few million dollars at stake in making this policy decision.
Amir Ullah Khan teaches Economics and writes on India's political economy.
