Posted by: John Elliott | December 13, 2012

Noise and turmoil in parliament but the place that matters this week is Gujarat

There has been a lot of heat and tension in India’s parliament over past week as the government has won grudging approval for its foreign supermarkets investment policy – a measure that is of little immediate economic importance but has led to accusations that Wal-Mart has been corruptly lobbying for it in India.

While parliament has been focussed noisily on this and various banking and other financial sector reforms (with the cabinet clearing more land and investment  initiatives today), the most important event that could affect India’s politics for a decade or more is taking place in Gujarat. Voting began there today (and continues next Monday) in the state’s assembly election. When the votes are counted on December 20, we will know whether Narendra Modi (below), the state’s chief minister, is likely to be the Hindu-nationalist Bharatiya Janata Party’s prime ministerial candidate for the general election due by 2014.

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The bigger his expected victory, the more likely it is that this controversial figure, whose reputation is blighted by his widely suspected role in encouraging, or at least allowing, Gujarat’s Hindu-Muslim riots in 2002, will push aside more moderate BJP leaders and opponents and become the potential prime minister.

Modi’s time as chief minister is seen (with the help of a US-based international public relations agency) as having been good for the state’s development, though his focus has been directed more at urban areas and the emerging middle class than at including the rural poor in economic growth. His only real problem in Gujarat is a BJP splinter group that could reduce his vote and prevent him improving on the party’s current 117 seats in the 182-seat assembly.

Rahul Gandhi confusion

It is also beginning to look as if Rahul Gandhi really will emerge as the Congress Party’s prime ministerial candidate, though he will have to show more commitment to public life than he has so far if he is to be taken seriously. He spent one day on the Gujarat hustings – in his usual style of flitting in and out of political events that does his reputation no favours, though his minimalist role suited the Congress Party’s wish to shield him from any blame for Congress’s expected defeat.

A Congress spokesman said three days ago that Rahul would lead the general election campaign and that his mother, Sonia, currently Congress president and leader of the governing UPA coalition, would act as “patron” and “supreme leader”. That seemed to seal Rahul’s role, but it was contradicted a day later by another spokesman who said that Sonia would remain president and that the election campaign would be run jointly. Such is the confusion caused Rahul’s shilly-shallying over what he plans to do with his dynastic inheritance!

Rahul Gandhi’s formal party job was expected to be announced soon after a government reshuffle at the end of October, but that did not happen. The reshuffle was significant primarily because Kamal Nath was made parliamentary affairs minister in addition to his existing role at the urban development ministry. This was a clever appointment because Nath’s wide-ranging contacts and skills at handling all aspects of political and policy persuasion and fixing, have been widely recognised for years. He has not always been appreciated by Sonia Gandhi and prime minister Manmohan Singh, but now they need him.

He proved his skill when, working with the prime minister and others, he brokered deals to secure enough support the pesky supermarkets investment policy – officially known as FDI in multi-brand retail. The measure won votes in parliament’s lower and upper houses mainly because of tactical voting and walkouts by two Uttar Pradesh parties that had more to do with policy and other inducements offered to them than anything to do with retail FDI. For example, the Bahujan Samaj Party led by Mayawati won controversial low caste concessions for its Dalit political base, so voted for FDI in the Rajya Sabha (upper house), where the government would have lost without its support, having merely abstained (by walking out) two days earlier in the Lok Sabha.

Manmohan Singh staked the government’s political future on this measure, even though it will have only minimal economic impact for several years because investments will take some time to emerge and not all states will become involved. The measure is immediately significant only because it sends a message internationally about the government’s reawakening and determination to try to drive reforms.

This has been backed by Sonia and Rahul Gandhi, who have abandoned (or shelved) their ambivalence about reforms and have publicly backed the FDI and other measures. That enabled the prime minister to move ahead, but the government’s political problems mean that the international reaction has been marginal – the rupee remains stuck around a historic low figure of around Rs55 to the US dollar, though the stock market has recovered.

Wal-Mart’s troubles

The accusations about Wal-Mart bribing Indian policy makers arose after the American company filed a routine report with the US Senate that it had spent approaching $25m on various lobbying activities including “enhanced market access for investment in India”. That was instantly picked up by Indian politicians and others who blurred the line between legal lobbying and illegal bribing and claimed that Wal-Mart must have broken the law.

Kamal Nath, who would have been a lobbying target when he was commerce minister from 2004 to 2009, announced in his new parliamentary role that an independent inquiry would look into the activities of Wal-Mart, which is partnered in India for its wholesale and retail activities with the telecommunications-based Bharti group. Wal-Mart is already being investigated for breaking regulations with a $100m investment with Bharti. It also has an internal inquiry in progress in the US looking into possible corrupt dealings in various countries including India where some senior executives were suspended last month.

This shows two things, First, it is perhaps unfortunate that a company as internationally controversial as Wal-Mart, which is renowned for being tough with farmers and other suppliers, is at the forefront of supermarket FDI developments. Second, any hint of possible corruption grabs instant headlines.

When – as seems quite possible – India has to decide whether it wants the abrasive and controversial Modi to be prime minister, it will have to take account of his reputation as a rare non-corrupt politician.


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