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The Power of Unity – Indian Election ’09

Whether you’re an executive meeting in a corporate boardroom, a student in a group meeting, or an organizer planning a community event, there’s nothing quite as frustrating as having a plan to achieve a goal, but then having dissenters blocking your way. Now I’m all for a democratic approach – listening to the opinions of all those involved, contemplating the information carefully, and then making the best decision, but sometimes that just doesn’t work. There will sometimes be people who, no matter how much you may reason with them, just won’t come around. What’s more, if these people are a significant influence (a key business partner, a team leader, or your boss) you just can’t move forward until they you both see eye-to-eye. Just think of the frustration and lost productivity while you engage in a game of strategy and negotiation trying to get to an outcome that works.

Now, let’s scale up the problem – imagine you’re a country with the same problem. That was India until the recent elections. The ruling Congress Party and their Prime Minister, Manmohan Singh, won the elections of 2004 with the support of the Communist Party in India. It was clear that Congress by themselves could not win a majority, and the only way to win the election was to embrace the Communist Party. This big political hug came at an expensive (and frustrating for legislators) price – the disagreement about key issues like foreign investment, the privatization of major industries, and nuclear issues. Where the Congress Party wanted to reform and open up to the world, the Communists wanted protectionism and isolation. Since the Congress Party was in power because they had the support of the Communist Party, they couldn’t exactly ignore the concerns of the Communists and move forward with their agenda. Many initiatives that would have benefited the country were put on hold due to disagreements between the two parties. India has enjoyed much growth over the past five years, though it has indeed been stifled. In contrast, look at China. They underwent this “opening” of their economy prior to India and have enjoyed much prosperity for it.

Well, all that has changed. In a massive surprise to the common man and experts alike, the Congress Party won many more seats than expected. Yes, they did still have to rely on other parties to gain a majority, but that reliance is much smaller than last time – small enough that they don’t have to turn to the Communist Party, they can get the support of a couple of smaller parties. Now the giant roadblock that has so far limited India’s growth and success has been (hopefully) removed. The only limitation to what the ruling government can do now is their own – any issues that come up within their party, or inefficiencies in how the government is run. Prime Minister Singh can now bring back on track his plans to privatize industries, resulting in innovation and prosperity, and a reduction in the national deficit. It’s amazing what unity (in this case, of the government) can do. When all the players get behind the problem and stop bickering, a lot more productivity can be achieved and great things can indeed happen.

So, what does this mean to the investor? Well until now investors had always kept India in the back of their minds – it was interesting, but not enough so to warrant investment. There were still many political issues that had to be resolved. With these elections we have every reason to believe that the issues that plagued the country over the past five years now have a chance to be resolved. So, my opinion is (and I note the legalese that basically says “my opinion is my own and should not in itself be taken as investment advice. Please talk talk to your investment advisor before trading as investing can result in losses”) that investors should certainly move India to the front of their minds. There is a lot of growth coming and so you should get in on it now while you can. Certainly the market has already priced in some of this growth (the market rallied 17% within minutes of opening on the election news, and then was shut down for breaching daily limits on upswings), but there’s still a way to go. Use pullbacks as a buying opportunity and hopefully the unity in the Indian government will translate into strong returns for investors.

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