Politics CLSA.pdf

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Indian politics

2 [email protected] 16 September 2013

Contents

Executive summary ............................................................................ 3

Congress losing; BJP not gaining enough ........................................... 4

A weak third-front government possible .......................................... 23

The X factors .................................................................................... 31

What to buy and sell......................................................................... 42

Appendices

1: Key regional parties .......................................................................... 65

2: Past governments ............................................................................ 70

3: Indias electoral process .................................................................... 71

4: Campaign expenditure ...................................................................... 74

5: Glossary .......................................................................................... 76

All prices quoted herein are as at close of business 9 September 2013, unless otherwise stated

Vote-winning research

Mahesh Nandurkar, [email protected]

+91 22 6650 5079

Abhinav Sinha+91 22 6650 5069

Rohit Kadam+91 22 6650 5037

Watch Mahesh on CLSA TV
https://www.clsa.com/member/video/542675609https://www.clsa.com/member/video/542675609https://www.clsa.com/member/video/542675609https://www.clsa.com/member/reports/537662736.pdfhttps://www.clsa.com/member/reports/537666591.pdf


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Executive summary Indian politics

16 September 2013 [email protected] 3

PrecariousElection outcomes are tough to predict, especially in a politically turbulent

environment. Congress and the opposition Bharatiya Janata Party (BJP) arewalking a tightrope, and neither is likely to win convincingly in next years generalelections. Indias next government is likely to be weak, made up of regionalparties, each with its own agenda and incapable of pursuing essential bold reforms.The fact that growth did not deteriorate during the tumultuous coalition rulebetween 1997 and 2000 offers some solace; but with the macro outlook fragile, wewould stick with quality cyclicals and stocks with earnings visibility.

The mood among voters suggests that the ruling United Progressive Alliance(UPA), led by Sonia Gandhis Congress Party, will lose next years general electionand the BJP will emerge as the single largest party. To rule, a party needs thesupport of 272 out of the 543 members of parliament. The BJP would need to

secure 200-plus seats of its own to form a strong and stable government capableof pursuing policy reforms. Thats a tall order at this stage of the game. TheCongress Party would find it easier to form a coalition, but short of 150 seats itwould not have the mandate to form a government, even with coalition partners.

Of course, a government with a clear majority is best placed to drive Indiasgrowth revival. Both main parties will try to woo regional blocs to form alliances.Samajwadi Party and Janata Dal United both have strong Muslim ties and areunlikely to side with the BJP. Several others are cold on BJPs would-be PMNarendra Modi. A coalition with Congress support would be an awkward outcomegiven diverse policy agendas, but it is feasible. The United Front, a 13-partycoalition held power for two years after the 1996 elections in one of the mostunstable of political environments, yet GDP averaged above trend at 6.6%. Given

unprecedented macro headwinds, this time will be different.

A 3-4% swing in the vote can make a big difference to election results due toIndias fragmented politics. Some 70 million new voters, representing 10% of thevoters, will take part, largely due to Indias young demographics. A surpriseoutcome cannot be ruled out. Congresss unexpected win in 2004 saw the marketfall 17% in two days. In 2009, the market rallied 17% over two days after theincumbents mandate was renewed convincingly.

A third-front coalition government would impact equity markets the most. Adefensive portfolio would work best in such a scenario. A strong mandate tothe BJP - or even Congress - would be ideal for cyclical plays. But we see a60-70% probability of a weak, indecisive coalition coming to power and hence

we remain cautious. We prefer exporters and stocks with revenue andearnings visibility such as TCS, Lupin, Power Grid, Reliance Industries,Zee Entertainment, Tata Motors and ITC. Among cyclicals, we like ICICIBank, Indusind Bank, Larsen & Toubro, Maruti and Sobha for theirrobust business model and valuation support.

Possible election outcomes in 2014

Government BJP Weak Congress Third Front

Probability (%) 40 20 40

Buy ideas PSU/private banks Private power utilities Industrials Infrastructure

IT Pharma Reliance Ind,

Tata Motors

High-qualitycyclicals includingprivate banks

IT Pharma Reliance Ind, Tata

Motors, Zee

ICICI Bank Select staples and

two-wheelers

Source: CLSA

Weak government

on the cards

A weak third-frontgovernment possible

Congress losing; BJP notgaining enough

The X factors

A minority coalition wouldbe negative for cyclicals

Winners and losers


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Section 1: Congress losing; BJP not gaining enough Indian politics


Congress losing; BJP not gaining enoughThe mood among voters suggests that the ruling United Progressive Alliance

(UPA), led by Sonia Gandhis Congress Party, will lose next years generalelection and the BJP will emerge as the single largest party. To rule, a partyneeds the support of 272 out of the 543 members of parliament. The BJP wouldneed to secure 200-plus seats of its own to form a strong and stablegovernment capable of pursuing policy reforms. Thats a tall order at this stageof the game. The Congress Party would find it easier to form a coalition, butshort of 150 seats it would not have the mandate to form a government, evenwith coalition partners.

Why 2014 election is important?Policy reform has never been more important in India. The economy hasfallen on hard times: the rupee has plunged against the US dollar; GDP

growth has slowed; foreign investors have fled; and corporate profitability iscollapsing. These domestic-macro concerns put upcoming elections in adifferent context to the last three.

Figure 1

India needs to address slowdown in growth

Source: CLSA

The onus on the new government will be to reverse the economic free-fall.This will require strong policy action to encourage investment. A government

with a big majority is best placed to drive Indias growth revival. Hence, a clearand decisive mandate from voters is needed to allow such a governmentcapable of pursuing policy reforms.

Market reaction to electoral results can be strong and immediate. Following2009 election results, the market moved rallied 17% over two days as theruling Congress won a stronger-than-expected mandate. After the 2004result, the market dropped 17% in two days as the right wing BJP lostunexpectedly and a Congress coalition, supported by left-wing parties, cameto power. In both cases, Congress won the elections.

Whatever the makeup of the new government, it is likely to set the tone for

policy and growth over the next five years. The current UPA administrationspopulist agenda including the National Rural Employment Guarantee Scheme(NREGS) has been the hallmark of its five-year term. In contrast, the BJP isperceived as more fiscally conservative, with a development-focused agenda.

Currency crisisIndia needs a savvy prime minister/

finance minister

Weak business confidenceIndia needs industry friendly

government

Weak financial asset pricesIndia needs government toassure financial investors

Growth slowingIndia needs strong and stable

government with effective policies

Elections

matterin 2014

Weak government

on the cards

Upcoming 2014 electionsare crucial

Huge expectations forthe next government

Stock-market reaction toprevious election results

in India was swift

New government:populist or reformist?

Policy reform has neverbeen more important


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Figure 2

UPAs populism

Scheme/measure

Description Outlay

NREGS Job guarantee scheme for rural Indians Rs400bn(US$6bn)

Food-security bill Legal food entitlement for 67% of the population Rs400bn(US$6bn)

Farm-loan waiver Complete waiver of loans given to small and marginalfarmers

Rs520bn(US$8.5bn)

Source: CLSA

Figure 3

Minimum-support-price hikes for rice crops

Note: Dotted lines reflect the two years preceding elections with disproportionate hikes.Source: CLSA, Department of Food and Public Distribution

However, Indias political outlook is far from rosy. While recent opinion pollssuggest the ruling United Progressive Alliance (UPA) will lose, the BJP-ledNational Democratic Alliance (NDA) is not a convincing winner either. The keyrisk for the market is that an unclear mandate could emerge. While Congressformed government with much weaker mandates in 2004 (145 seats) and2009 (206 seats), a loss of more seats amid a weakening economy could seeit sit out of government formation. We see the chances of a weak leadershiplargely made up of regional parties - each with their own agenda andincapable of pursuing the bold reforms needed to kick-start Indias economy -

as the most probable scenario. This would usher in a period of prolongedweak and patchy policy making.

UPA up against severe anti-incumbency factorSome would argue that voters dont punish incumbency. They punish failure.India has a long history of booting out incumbent governments. The biggestfailure of the current government has been on the economic front. GDP growthdived from an average of 8.5% over FY04-FY11 to 4.4% in 1QFY14, a 10-yearlow. Slowing growth has been compounded by rising consumer price inflation at9.6% on rising food and fuel prices. Headroom for the central bank to respondhas been limited due to inflation, high fiscal and current account deficits andrupee depreciation (down 43% in the current governments rule to an all-time

low). Standard & Poor's downgraded Indias international ratings outlook tonegative in April 2012. There is an urgent need to undertake serious reforms,which the current government seems to be avoiding.

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FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14

UPA1NDA UPA2

UPA wasted itsstrong mandate in

2009 elections

A weak government is themost likely scenario

Populist schemeshave been hallmark

of UPAs rule

UPA governmentawarded farmers higher

prices for their rice cropsahead of elections


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Figure 4

Economy deteriorates

Parameter FY05 FY09 FY13

GDP growth (%) 7.0 6.7 5.0

Organised sector employment (m) 26 28 29

4Y Cagr in organised employment (%) (1.1) 1.5 0.8

Wholesale Price Index (%) (WPI) 4.4 8.1 7.4

Consumer Price Index (%) (CPI) 4.3 10.8 11.2

Source: CLSA, RBI, Union Budget and Economic Survey

Figure 5

Business optimism at its lowest since 2Q09

Source: CLSA, CEIC

In addition to the economic slowdown, the governments image has taken asevere beating on the issue of corruption. From 2010-11, UPA officials wereindicted in corruption cases, with the telecom 2G-spectrum-allocation scandal(US$29bn) and the coal-block scandal (US$31bn) the biggest two (see Figure 6).

Figure 6

Scams during UPA rule

Scam Description Scale(Rsbn)

2G Spectrumallocation

The allocation of 2G telecom licences/spectrum in January 2008was conducted on a first come first serve basis at prices which

had been fixed since 2002. The Auditor General of India (CAG)alleged that had the allocation been done at prices determinedin an open auction, the government would have fetched muchhigher proceeds. The incident led to the arrest and resignationof the telecoms minister, A Raja, who was aligned with theDMK, which later withdrew support.

1,760

CommonwealthGames

The Commonwealth Games took place in Delhi in 2010.Opposition and Congress party members alleged excessiveexpenditure on the games and its infrastructure. The sportsminister, Suresh Kalmadi, a member of Congress, was arrestedfor allegedly awarding illegal contracts.

350

Coal-blockallocation

Indias coal deposits were allocated to public-sector entities andprivate companies by Prime Minister Manmohan Singh. CAGalleged that the government had the authority to allocate coalblocks by a process of competitive bidding which it avoidedcausing windfall gains to beneficiaries.

1,860

Source: CLSA, CAG, Media reports

80

100

120

140

160

180

200

220

Sep 02 Jul 04 May 06 Feb 08 Dec 09 Oct 11 Aug 13

(Index) D&B Business optimism Index Average

UPA governmentrepeatedly hit by large

corruption scandals

Economic outlook atits weakest since GFC

Domestic feel-goodfactor has all but

vanished; we expectFY14 GDP growth at 4%

Scams have ledto the dismissal ofseveral ministers


7/80



Despite its populist agenda, Congress has been adversely affected by a seriesof large-scale protests, largely made up of Indias urban middle class. First,

there was the rise of a popular anticorruption movement led by activist AnnaHazare, who conducted a hunger strike in Delhi in August 2011. Another massprotest developed in December 2012 over poor security for women following ashocking sexual assault in Delhi that lead to a womans death. Both protestmovements appear to have gathered strong support from urban youth andhave served to dent the UPAs reputation.

Recent examples of anti-incumbency include 2011 state elections in Tamil Naduwhere the DMK, tainted by the 2G-scam, was ousted by the AIADMK ofKarnataka. Disgraced BJP chief minister BS Yeddyurappa was shown the doorby the incoming Congress in the 2013 Karnataka state elections.

Figure 7 Figure 8

Social activist Anna Hazares fast unto death Indians protesting a sexual assault in Delhi

Source: Newslinx, CLSA

Parliamentary efficiencyThe state of the current parliament in terms ofparliamentary sessions where work could be conductedfell drastically from mid-2010 as the UPA governmentbecame embroiled in corruption allegations andinfighting. The UPA government was reduced to a rulingminority when its two largest allies, TMC and DMK,withdrew support in September 2012 and March 2013,allowing the opposition to disrupt parliament more

easily. While internal fighting and conflicting agendashave hampered the UPAs ability to push for strongerpolicy action, the government finally managed to getsome populist bills passed (the food security and landbills) in the latest session (August-September 2013) asthe opposition party BJP did not want to be seen asblocking populist bills ahead of elections. Nonetheless,122 bills were pending at the end of the session.

Bills passed versus proposed Parliamentary efficiency

1 Hours worked against hours budgeted. Source: CLSA, PRS Legislative Research

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(%) Lok Sabha

Rajya Sabha

2G scam

disruptsparliament

Coal scam

disruptsparliament

Some

improvementas populistbills passed

Large-scale publicprotests have dented

UPAs image


8/80



Figure 9

Indias current parliamentary structure

Seats Share (%)

UPA including outside support 283 52.1

UPA 234 43.1

Indian National Congress 206 37.9

Nationalist Congress Party 9 1.7

Others/Independents 8 1.5

Rashtriya Lok Dal 4 0.7

J&K National Conference 3 0.6

Indian Union Muslim League 2 0.4

Jharkhand Vikas Morcha 2 0.4

Supporting parties 49 9

Samajwadi Party 22 4.1

Bahujan Samaj Party 21 3.9JDS 3 0.6

Rashtriya Janata Dal 3 0.6

NDA 134 24.7

Bhartiya Janata Party 116 21.4

Shiv Sena 11 2

Shiromani Akali Dal 4 0.7

Others 3 0.6

Others 126 23.2

Janata Dal (United) 20 3.7

Left parties 25 4.6

All India Trinamool Congress 19 3.5

Dravida Munnetra Kazhagam 18 3.3

Biju Janata Dal 14 2.6

Others 12 2.2

AIADMK 9 1.7

Telugu Desam Party 6 1.1

TRS (not a formal alliance) 2 0.4

Viduthalai Chiruthaigal Katchi (VCK) 1 0.2

Lower-house (Lok Sabha) seats 543 100

Source: Lok Sabha, CLSA

Figure 10

Upcoming state elections

State Date Lower house seats % of seats Incumbent

Chhattisgarh Nov 13 11 2.0 BJP

Jammu & Kashmir Nov 13 6 1.1 JKNC

Madhya Pradesh Nov 13 29 5.3 BJP

Delhi Nov 13 7 1.3 Congress

Mizoram Dec 13 1 0.2 Congress

Rajasthan Dec 13 25 4.6 Congress

Source: CLSA, ECI

The food-security bill is a corner piece of Congresss populist agenda. It entitlestwo-thirds of Indians to buy food grains at a fraction of the market price.Parliament initially blocked the bill from passage. Congress finally promulgated

an ordinance for the bill in July 2013, ahead of the August session ofparliament, before getting the bill finally passed in both the houses.

Swift implementationof the populist food

bill could trigger

early elections

Large state elections

scheduled for Nov-Dec

To rule, a party needs thesupport of 272 out of the

543 members ofparliament

UPA is in a minoritybut continues to rulewith outside support

from a few parties

Of the otherparties,JDU and DMK are

closer to the UPA

BJD, TDP and AIADMKare past NDA allies

TMC has aligned withboth UPA and NDA


9/80



Opinion polls project a big loss for UPA . . .A backlash against the incumbent UPA is likely to translate to a big loss. A

series of opinion polls between April and August this year predicted thegovernments parliamentary seats would decline an average 33-44% toaround 139 seats, roughly half of the 272 required to form a government. Itsa tough task for Congress to rebuild a mandate in a short period of time withan economy in strife.

Figure 11

Recent polling

Party Times NowApril 2013

CNN IBNJuly 2013

India TodayAugust 2013

Poll range Poll avg 2009 Gain/(loss)

Congress 113 135 122 113 - 135 123 206 (83)

Congress Allies 15 18 15 15 - 18 16 28 (12)

BJP 141 161 135 135 - 161 146 116 30

BJP Allies 24 15 20 15 - 24 20 18 2

Left 26 25 30 25 - 30 27 25 2

SP 35 19 34 19 - 35 29 22 7

TMC 27 25 23 23 - 27 25 19 6

AIADMK 27 18 30 18 - 30 25 9 16

BSP 26 17 27 17 - 27 23 21 2

JDU 19 17 10 10 - 19 15 20 (5)

BJD 13 14 13 13 - 14 13 14 (1)

YSR Congress 12 13 13 12 - 13 13 0 13

RJD 7 10 13 7 - 13 10 3 7

TRS 9 7 12 7 - 12 9 2 7

TDP 9 8 9 8 - 9 9 6 3

Others 40 41 37 37 - 41 39 34 5

Source: CLSA; C-Voter State of Nation report; India Today-CVoter Mood of the Nation opinion poll, CNN-IBN, Times Now

. . . but NDA is not projected to gain enoughUPAs projected loss presents an opportunity for the opposition BJP-led NDA tograb power after a decade in opposition. However, opinion polls suggest thatgains from UPAs losses will be split between the NDA and a third front madeup of smaller/regional parties. Based on current alliances, we expect the NDAto gain about 40% of the 86 seats lost by the UPA, with the remaining 60%cornered by other parties. This is a recipe for unstable government, with third-front parties projected to account for 238 seats, which falls 34 seats short of amajority to rule. Given strong internal rivalries among some third-front parties,

it is unlikely that all of them will band together to form government followingthe elections. Our base case for 2014 is therefore instability.

Figure 12 Figure 13

Seat split projection in 2014 elections Seat split in 2009 election

Source: CLSA

UPA26%

NDA30%

Others44%

UPA43%

NDA25%

Others32%

Opinion polls suggestUPA to lose 33-44%

of the seats

NDA projected to still fallshort of a 272 majority

Major parties in upcomingelections will take a hit


10/80



BJP projects Modi as the prime minister of choiceFraming the current prime minister as an ineffective leader has been one of

the BJPs key strategies in the run-up to 2014 general elections. AndCongress has suffered a leadership deficit as heir apparent, Rahul Gandhi, hasso far refused to step up to the leadership role. The spring in the BJPs stepcan be partly credited to the emergence of its new national leader in Guaratchief minister Narendra Modi. While the Indian democracy is not exactly apresidential/individual-led contest, the BJP is attempting to project Modi as adecisive leader. Indeed, a July-13 opinion poll on peoples preference forprime minister put Modi as the No.1 candidate, leading his nearest rival RahulGandhi by 7ppts and the current prime minister by 13ppt.

Figure 14

Prime ministerial polling

PM choice (% of respondents) Party 2009 2011 2013

Manmohan Singh Congress 18 10 6

Sonia Gandhi Congress 16 10 5

Rahul Gandhi Congress 6 19 12

Narendra Modi BJP 2 5 19

LK Advani BJP 15 4 2

Mayawati BSP (Third front) 5 3 3

Others na 18 24 14

No opinion Na 20 25 39

Note: Sample size for 2009 - 36,620, 2011 - 20,854, 2013 - 19,062. Source: Poll results as published byCNN-IBN. CLSA.

Modi as a prime-ministerial choice has evolved gradually over the past twoyears. Son of a grocer, he worked at a railway station tea stall and belongs toa backward caste in Gujarat. Modi joined the RSS (BJPs mother organisationin 1971) and then the BJP in 1987. Based in the state of Gujarat but alsocontributing at a national level, Modi rose through the ranks and in 1998 wasappointed general secretary of the party. While he was known to haveantagonised the state leadership, a poor response to the relief efforts of theJanuary 2001 Gujarat earthquake won him the position of chief minister.

His defining moment came a year later when communal riots led to hundredsof deaths in Gujarat in February-March 2004. Modis response to quell theviolence was perceived as inadequate and biased towards majority Hindus.Calls for his dismissal rose. Nonetheless, the BJP central leadership stuck by

him. Modi called for early elections in December 2002 and won by a bigmargin, gaining a 5% swing. This was a remarkable turnaround from theanti-incumbency wave which the BJP was facing a year early.

Back-to-back victories in Gujarat state elections in 2007 and 2012 providedModi a strong mandate (9-11 percentage higher vote share than second-placed Congress). The results raised his profile within the party. Meanwhile,the communal-riots issue had given a disproportionate share of mediaattention to Modi. Strong oratory skills and the success of Gujarat as one ofthe best-developed states of India have led to a rising voter base amongIndias masses. The rising profile of Modi versus an ageing leader in previouselection prime-ministerial candidate LK Advani, led the BJP to announce Modi

as the head of national elections for 2014, effectively making him the partysprime ministerial candidate.

BJP trying to bridge theperceived leadership

deficit by projecting Modias the PM choice

Modi leads his nearestrival by 7ppts

Prime ministerial hopefulstarted from humble roots

Communal riotsduring 2002 remain a

defining moment

In July, BJP appointedModi as head of national

elections for 2014, justshort of PM candidate


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Figure 15

Key milestones in Narendra Modis political career

Date Key milestone

Sep 1950 Born in Vadanagar, Gujarat to family of grocers

1971 Becomes a for Rashtriya Swayamsevak Sangh (RSS) (BJP mother organisation) head for six Gujaratdistricts

1987 Joins the BJP

1990 Contributes to BJP's Rath Yatra strategy which generates strong response

1998 Appointed general secretary of BJP

Jan 2001 Gujarat hit by earthquake. Then BJP chief minister Keshubhai criticised for mishandling relief efforts

Oct 2001 Modi appointed Gujarat chief minister for first time

Feb-Mar 2002 Communal riots in Gujarat leave hundreds dead, Modi comes close to being sacked

Dec 2002 Modi calls for early polls, wins by a strong majority

Oct 2003 Vibrant Gujarat' summit launched to attract businesses to Gujarat

May 2004 BJP loses national elections

Mar 2005 USA denies visa to Modi over Gujarat riots issue

Dec 2007 Modi sweeps to victory in Gujarat polls again

May 2009 BJP's national election seats decline further with L K Advani presented as PM candidate

Jul 2010 NDA coalition partner Nitish Kumar asks Modi not to enter Bihar

Dec 2012 Modi becomes chief minister of Gujarat for a record fourth term

Jun 2013 Modi appointed BJP poll head for 2014 national elections

Source: CLSA, News articles

Figure 16

Vote share of BJP and Congress in Gujarat state polls

Source: CLSA, ECI

Modi - Solid development agenda . . .Modis key message revolves around the need for economic development. Themessage has included ideas of strong governance based on a small andefficient government. His ideas have reflected well in his home state. WhileModi inherited a weak economy in FY02 (Gujarats GSDP trailed Indias by1ppt between FY00-02), between FY03 (first full year of Modis chiefministership) and FY12, Gujarats real gross state domestic product grew by

an average of 10.3%. This was 2.4ppts higher than Indias GDP growth in thesame period.

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1998 2002 2007 2012

BJP CongressModi appointed

CM in Oct 11

Vote share (%)

Modi held on to high vote sharefor two elections since 2002

Modi credited withturning around

Gujarats economy

BJP won strong mandatesin Gujarat after Modis

appointment aschief minister


12/80



Figure 17

Gujarat GDP growth vs India real GDP growth rate

Source: CSO, CLSA

One of Modis key initiatives was the biannual Vibrant Gujarat summit,created in 2003 to attract investment to the state. The same was dovetailedwith industry friendly policies such as providing land to industries (a keyproblem in several states), electricity at affordable rates and time boundapproval processes for setting up industries. Success of industries in Gujaratled to the Vibrant Gujarat summit growing in stature with the value ofmemorandum of understandings on investment rising from US$14bn in 2003 toUS$462bn in 2011.

Figure 18

Gujarat assembly elections seat share

Party 1995 1998 2002 2007 2012

BJP 121 117 127 117 115

Congress 45 53 51 59 61

Others 0 4 0 3 2

Source: ECI, CLSA

. . . now trying to consolidate the Hindu voteWhile a development agenda has been Modis core message to highlightCongresss weak governance and corruption, he has talked more about theBJPs Hindutva ideology in speeches and interviews since July 2013, followinghis appointment as the BJPs poll campaign chief. Perhaps realising that thedevelopment agenda may not find favour beyond urban voters (whichrepresent about 30% of the electorate), polarisation of voters on religiouslines has traditionally benefited the BJP as traditional Hindu voters tend toside with the party, particularly since it took up the Ayodhya Ram Templeissues in the late 1980s.

Modi was quick to make his trusted aide Amit Shah (former home minister ofGujarat in Modis government) in charge of BJPs party affairs in Uttar Pradesh,Indias largest state. While Amit Shah is seen a strong political strategist, he alsocarries the image of a hardliner. With the BJP looking to reverse its fortunes in

the key state of Uttar Pradesh (80 Lok Sabha seats, 15% of total) from its poorshowing in 2009 elections (116 seats, the lowest since 1984 and 12.5% in UttarPradesh), the party is likely to pursue a strategy of voter polarisation. In August,

(5)

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FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12

Gujarat All-IndiaYoY Real GDP (%)

Gujarat average GSDP growth FY03-FY12: 10.3%

India average GDP growth FY03-FY12: 7.9%

Narendra Modi becamechief minister of Gujarat

in October 2001

Attracting investmentshave been thecornerstone of

Modis policy

Gujarat growth strongeragainst Indias under

Modis rule

Polarisation of voters onreligious lines to appeal

to traditional BJP votersbeyond urban India

Trusted aide Amith Shah,seen as a hardliner


13/80



the Vishwa Hindu Parishad (VHP) - a Hindu nationalist organisation perceived asbeing close to the BJP - created controversy by starting a movement in Central

Uttar Pradesh aimed at reviving the memories of the old Ram Temple issuewherein the BJP garnered strong support in the late 1980-90s from Hindus bypushing for the construction of a temple on a disputed site.

Figure 19

Hindu nationalist poster

Source: CLSA

Modi factor alienates the BJP from potential partnersNotwithstanding his development agenda, Modis media image remains thatof a hardliner following the 2002 Gujarat riots. As such, his elevation as BJPscampaign chief, seen as making him the defacto prime-ministerial candidate,has the effect of scaring away current and potential partners who have amore moderate image.

Disunity played out when BJPs 17-year alliance with Janata Dal United (JD-U)ended in June, within a week of Modis appointment as BJPs poll campaignchief. The BJP-JDU tie up had run a successful coalition government in thestate of Bihar since November 2005 and received a strong mandate in 2010.The break-up by the coalition leader Nitish Kumar was a step to prevent anerosion of his moderate image and the commensurate vote of minorities.

Uttar Pradeshs importance in national electionsOne out of every six Indians resides in Uttar Pradesh(UP). It is the worlds most populous subnationalstate. If it were an independent country, it wouldhave the fifth-largest population in the world afterChina, India, Indonesia and the USA. Brazil has fewerpeople than UP although its land area is 35 timesbigger. The Indian state represents 80 out of the 543members of the countrys lower house of Parliament.Eight (out of 14) of Indias prime ministers have

hailed from UP.

UP is important for BJPs fortunes. The party rose tonational prominence in 1991 after the temple incident atAyodhya, UP. It then won 51 (of the then 85) seats in thestate. In 1998, the BJP won 57 seats (31% of the total182), propelling it to its first national government. Thetally has since dwindled to 10 seats in the past twoelections, with BJP ceding ground to the local SP and BSPparties. Potential to swing BJPs fortunes around lies in UPand that will probably drive Modi to contest elections there

instead of his home state of Gujarat.

Posters carrying Modiscomment : I am HinduNationalist during his

visit to Mumbai

Modi as a PM choice notacceptable to allies/

potential partners

Modis elevation in theparty triggered JDUs

17 year alliance breakup


14/80



Modi not finding friendsAnother ally in the previous NDA government, TMC has outrightly rejected an

alliance with a Modi-led BJP. Another ally, the Biju Janata Dal (BJD) of Orissa,has said that it is equidistant from BJP or Congress, opening the way for thegroup to join a third front. Other traditional BJP allies - AIADMK in Tamil Naduand TDP in Andhra Pradesh - have been noncommittal about their support forthe BJP. While the leader of the AIADMK has termed Modi as a good friend,she has not suggested a poll alliance so far. The TDP, vexed by the AndhraPradesh split issue, has not committed to any relationship with the BJP.

Figure 20

Leaders who have openly criticised Narendra Modi and the BJP

Leader 2014 seats Party Comments

Naveen Patnaik 13 (14) BJD There is no chance of that happening (BJP-BJD alliance). The Biju Janata Dalwill not be a part of the (BJP-led) National Democratic Alliance

Mayawati 23 (21) BSP Will do all it can to stop Narendra Modi from becoming the Prime Minister

Akhilesh Yadav 29 (22) SP No, never (Will you support BJP/ NDA if fallen short of numbers). We will sitin the opposition

Mamata Banerjee 25 (19) AITC Trinamool will never support Modi

Prakash Karat 27 (25) CPI (M) With Modi's rise, the BJP is left with parties like Shiv Sena and Akali Dal whohave a narrow sectarian approach. It is going to affect BJP's efforts to widensupport base in building alliances and makes it impractical. Already NDA hasfurther divided and the JDU has gone out. It is not realisable anymore

Note: Seats mentioned in brackets are those won in the 2009 elections. Source: CLSA, Media

The alienation of allies by the NDA with Modi as the projected leader is

expected to cost it 87 seats based on opinion polls. Theoretically, a projectedcombination of NDA seats on its own, along with those of its alienatedpartners, will bring it within 5% of the majority 272 benchmark - putting it ineasy reach of forming the next government. However, with Modi seen as thekey for revival of the NDA/attracting votes away from UPA, the move awayfrom Modi as PM candidate is unlikely; at least until election results areannounced. As such, a strong performance by the BJP, winning 200-plus of itsown seats remains the key for the NDA to regain power.

Social media and India politicsIndian ministers are increasingly using social media sites

such as Twitter and Facebook to campaign. Recently,BJPs prime-ministerial contender Narendra Modi overtookCongress minister Shashi Tharoor as the Indian politicianwith the most followers on Twitter. Modi and Congress-candidate Rahul Gandhi are going head-to-head onFacebook where their fan pages are garnering a multitude

of likes. Facebook in India has about 82 million monthly

active users while twitter has around 22 million. India hasaround 150 million internet users, the third largest afterthe USA and China; however this represents about 12%of the Indian population. Social media is influential inurban constituencies but has limited impact on the ruralelectorate.

Political leaders on Twitter in India

Leader Party Followers (m)

Narendra Modi BJP 2.2

Shahi Tharoor Congress 1.8

Manmohan Singh (PMO) Congress 0.7

Sushma Swaraj BJP 0.6

Arvind Kejriwal AAP 0.5Rahul Gandhi Congress 0.0

Leader of Aam Aadmi Party (AAP) which was an offshoot of the anti-corruption movement of Anna Hazare. Source: CLSA

Some allies not averse to

BJP but Modi as PM mightbe an issue

Modi to remain

favoured prime-ministerial candidate


15/80



Figure 21

Parliamentary structure for 2014 as per projections

Source: CLSA

Figure 22

How can BJP get to 200-plus seats in 2014?

State Totalseats

BJP in1999

BJP in2004

BJP in2009

BJP 2014Blue Sky

Comment

Andhra Pradesh 42 7 0 2 3 Appeal of Modi to urban voters, some polarisation mayhelp

Assam 14 2 2 4 5 Riots have polarised the state

Bihar 40 231 5 12 15 JDU split prevents larger gains

Chattisgarh 11 na 10 10 10 Should largely consolidate position

Delhi 7 7 1 0 5 Expect gains due to anti-incumbency, Kejriwal's AAP partya wild card

Gujarat 26 20 14 15 20 Gains on back of Modi wave

Haryana 10 5 1 0 5 Congress battling strong anti-incumbency

Jharkhand 14 na 1 8 5 Congress, JMM alliance a negative

Karnataka 28 7 18 19 15 Return of Yeduyrappa can help

Kerala 20 0 0 0 0 Strong third finishes expected

Madhya Pradesh 29 292 25 16 20 Expect gains on strong local-government performance

Maharashtra 48 13 13 9 15 Vote transfer from MNS can bring unexpected gains

Orissa 21 9 7 0 5 BJP may gain at cost of BJD if partner looks to walk away

Punjab 13 1 3 1 2 To cede seats in favour of alliance partner SAD

Rajasthan 25 16 21 4 20 Congress battling strong anti-incumbency

Tamil Nadu 39 4 0 0 5 Understanding with ally AIADMK critical

Uttar Pradesh 80 293 10 10 40 Modi/Amit Shah combo looking to gain on back of Modi'sOBC status, anti-incumbency, polarisation

West Bengal 42 2 0 1 2 No major gains expected

Other states 34 8 7 5 10 Gains in hill states of Uttrakhand to help

Total 543 182 138 116 202

Bihar was combined with Jharkhand in 1999 for a total of 54 seats; Madhya Pradesh was combined with Chattisgarh in 1999 for a total of 40 seats; Uttar Pradesh was combined with Uttrakhand in 1999 for a total of 85 seats. Source: CLSA, ECI

BJP, 146

NDA alliescurrent, 20

NDA alliesalienated, 87

Congress, 123

UPA alliescurrent, 16

All others, 151Total:

543 seats

NDA, irrespective ofallies alienated,

is still likely to be thelargest coalition


16/80



Congress has a wider national presence than BJPWhile the BJP hopes to garner a strong share of lower-house seats, it is

handicapped because of its smaller reach across India. In the 2009 elections,the BJP won elections in seven of the 27 states (excluding union territories)

across India. Congress was victorious in 12 states. While the BJP has a strong

presence in all the major states of north, central and west India; its presence

in the south and east part of the country is weak and has been traditionally

dependent on local allies. With BJPs traditional allies now uncertain about

their support because they do not want Modi as prime minister, the task of a

BJP-led NDA to hit a majority will be tough.

Figure 23 Figure 24

Congress in 2009 general elections BJP in 2009 general elections

Source: CLSA, ECI

Congresss political agenda has always been more social and rural compared

to the BJP. Below we made a comparison of the election manifestos of both

the national parties in 2004 and 2009. Congress tries to romanticise its pastand the fact that its great leaders played a big role in bringing independence

to the country; from Mahatma Gandhi, Nehru and the Gandhi family

(marketed as the family born to run independent India). Given its large

national presence and historical roots, this tactic has worked more often than

not and resonates today as Rahul Gandhi is expected to be the partys prime-

ministerial candidate.

Congresss campaigns, both in 2004 and 2009, focused around secularism,

which in effect assured minority religious groups would vote for the party.

Congress targets the rural poor, the aam aadmimeaning the common man,

who in India is more concerned with his daily bread and safety than GDP

growth rates. In both elections, Congress focused on major government

expenditure programmes directed at lower-socioeconomic classes, be it loan

waivers for farmers worth Rs520bn in 2008 or schemes like the NREGA,

reservation for the deprived and minorities.

Andaman & Nicobar Islands

Jammu & Kashmir

2 (6)

Himachal Pradesh1 (4)

Punjab8 (13) Uttaranchal

5 (5)

Uttar Pradesh21 (80)

Haryana9 (10)

Rajasthan20 (25)

Madhya Pradesh12 (29)

Bihar2 (40)

Sikkim

Jharkhand1 (14)

West Bengal6 (42)

Orissa6 (21)

Chhattisgarh1 (11)

Maharashtra17 (48)

Andhra Pradesh33 (42)

Karnataka6 (28)

Goa1 (2)

Tamil Nadu8 (39)Kerala

13 (20)

Gujarat11 (26)

Assam7 (14)

Arunachal Pradesh2 (2)

Nagaland

Meghalaya1 (2)

TripuraMizoram

1 (1)

Manipur2 (2)

Lakshwadeep

Delhi7 (7)

States in which Congress won the most seats

States in which Congress has presence but didnot win the most seats

Party has negligible presence


Jammu & Kashmir

Himachal Pradesh3 (4)

Punjab1 (13) Uttaranchal

Uttar Pradesh10 (80)

Haryana

Rajasthan4 (25)

Madhya Pradesh16 (29)

Bihar12 (40)

Sikkim

Jharkhand8 (14)

West Bengal1 (42)

Orissa

Chhattisgarh10 (11)

Maharashtra9 (48)

Andhra Pradesh

Karnataka19 (28)

Goa1 (2)

Tamil Nadu

Kerala

Gujarat15 (26)

Assam4 (14)

Arunachal Pradesh

Nagaland

Meghalaya

TripuraMizoram

Manipur

Lakshwadeep

Delhi

States in which BJP won the most seats

States in which BJP has presence but did not winthe most seats

Party has negligible presence

Congress presence isthroughout India

Congress has followed asocial and rural agenda

Populist schemes suchas the farm-loan

waver and NREGA areCongress hallmarks


17/80



Figure 25

Vote share trend during general elections

Source: CLSA, ECI

The BJPs first tenure in government over 1999-2004, in which it successfullyled a coalition, was seen as progressive and pro-development. However theIndia Shining campaign failed to connect with the average nonurban voter.BJPs 2004 campaign promised double-digit GDP growth and vowed to makeIndia a global manufacturing and services hub. Given BJPs weaker pan Indiapresence and failure to play the elections on local issues, which matter more

outside the metros, BJP ended up losing its mandate.

In 2009, the BJP appealed well to the informed citizen/business communitieswith a focus on reducing taxes, bringing back money illegally stashed inoverseas tax havens and pushing through reforms on land acquisition.However Congress was riding high on the back of a bull run in global markets,record FII flows and GDP growth for the Indian economy and played itssecularism card to bag a surprise win with a big mandate.

BJP - Key leadersNarendra Modi, chief minister of Gujarat

since 2001 and star campaigner for the BJPin upcoming elections, he is the most likelyprime minister of India if the BJP-led NDAforms a government. His reputation as a pro-

industry and development leader with a good trackrecord in Gujarat augurs strongly but the ghosts of the2002 riots still haunt him in some factions.

LK Advani, the senior-most leader of theBJP and the home minister under formerBJP prime minister Vajpayee. At 85, withage not on his side, one may not be sure ofhis prime-ministerial ambitions. Reports

indicate that Advani still continues to be unhappyabout Modis potential elevation to the BJPs prime-ministerial candidate.

Sushma Swaraj is the current leader of the

opposition in the Lok Sabha for the BJP andis a former chief minister of Delhi. Somesmall regional parties that have supportedthe BJP in the past favour her candidacy

more than that of Narendra Modis.

Rajnath Singh is the current president ofthe BJP, taking over from the previous NitinGadkari after his resignation on corruptioncharges in 2013. He was the chief ministerof Uttar Pradesh during 2000-02. In the NDA

government led by Atal Bihari Vajpayee, he wasminister of agriculture. Rajnath Singh has movedquickly to appoint Narendra Modi as in-charge of

partys election chief despite opposition from Advaniand other factions in the party. He could emerge as thesurprise candidate for PM to win support of allies.

0

10

20

30

40

50

60

1952 1957 1962 1967 1971 1977 1980 1984 1989 1991 1996 1998 1999 2004 2009

(%) Congress BJP Others

Congress 2009 re-election campaign on

traditional social issues,coupled with populist

measures, was a success

BJPs vote share on adeclining trend since past

three elections

BJPs 2004 re-electioncampaign seen as in-

effective amongst broaderelectorate


18/80



Figure 26

Comparison of election manifestos for 2004 and 2009 elections

2004 Congress/UPA BJP/NDA

Impact terms Secularism, job guarantee, inclusive growth GDP growth, India Shining, knowledge economy

Accusations againstthe opposition

Pro-privatisation, farmer suicides, Gujarat riots andcommunalism (pro Hindu stance)

Wrong policies of successive Congress governments,decades of below average growth, delayed reforms

Key Promises NREGA (National Rural Employment Guarantee Act,legal guarantee for at least 100 days of paidemployment)

Ensure communal harmony Vocational programmes for youth PPP programs in infrastructure, social housing

projects, revamping railways

Economic reforms Make India into a global manufacturing and

outsourced services hub

Education, economic uplift and empowerment ofminorities

Streamline clearances for major projects Judicial and electoral reforms

2009

Impact terms Secularism, nationalism, social justice, publicinvestment, reservation

Good governance, reduce taxes, modernise,independent nuclear policy, black money

Accusations against

the opposition

Hardly a national presence, narrow and communal,

divisive

A mute prime minister, compromised CBI, failed NREGA,

mismanaged economy, corruptionKey promises Combat recession, step up public investment and

defence spend

More reservation for the economically weakersections of all communities over and above existingfor SC, ST, OBCs

Increased scholarships in education Promoting/ promoting minorities interest Introduction of the GST, judicial reforms

Strong anti-terrorist stance (revoke the controversialPOTA)

Resort border disputes with China Bring black money stashed abroad (c.Rs250bn) Land acquisition bill, modernize agriculture Reduce taxes and interest rates Promote clean energy, modernise intelligence

agencies

Source: CLSA

Congress, continuing in its tradition of populist measures, thisyear introduced the food security bill in a bid to provide foodsecurity to 75% of the rural and 50% of the urban population

with a focus on nutritional needs of children, pregnant andlactating women. Intentions notwithstanding, the problem hasbeen the execution of such programmes, with recurrent leakages.Another such initiative has been the Direct Benefit Transfer IndiaStrategy (see our April 2013 report, Welfare plumbing), whichaims to transfer subsidies directly to people living below the poverty line. Thedirect benefit transfer programme aims to stop pilferage from the distribution offunds sponsored by Indias central government, but remains to be proven.

Congresss key leadersManmohan Singh, the current Prime

Minister under UPA2 and UPA1 and alsorenowned economist, is the only primeminister since Jawaharlal Nehru to return topower after completing a full five-year term,

and the first Sikh to hold the office. However he hascome under severe criticism for not being pro-active andresponsive enough to tackle various economic issues.

P Chidambaram is the current FinanceMinister of UPA2 trying to put India back on agrowth track. He is also credited withdelivering the Dream Budget in the late1990s with the United Front in power. He is a

well-known corporate lawyer and was earlier the homeminister for three and a half years under UPA2.

Rahul Gandhi is the grandson of Rajiv

Gandhi and the son of UPA chairperson,Sonia Gandhi. He is most likely the next inline to be Congresss prime-ministerialcandidate. Kin of the Gandhi family makes

him popular with Congress loyalists, however no priorministerial experience and a relatively late entry topolitics go against him.

Sonia Gandhi has been the President of theCongress Party and widow of former primeminister Rajiv Gandhi. She has also served asthe UPA chairperson and is believed to be thedecision driver behind Manmohan Singhs

government. She has been challenged in the past to

become Indias Prime Minister by rivals due to her foreignorigins; we dont expect her to be a likely candidate.

DBT has been a well-intentioned scheme to

plug leakages insubsidy transfers
https://www.clsa.com/member/reports/542667064.pdfhttps://www.clsa.com/member/reports/542667064.pdfhttps://www.clsa.com/member/reports/542667064.pdfhttps://www.clsa.com/member/reports/542667064.pdfhttps://www.clsa.com/member/reports/542667064.pdfhttps://www.clsa.com/member/reports/537662736.pdfhttps://www.clsa.com/member/reports/542667064.pdfhttps://www.clsa.com/member/reports/542667064.pdf


19/80



Congress better equipped to form coalitionBecause of its broad reach, moderate agenda and populist policies, Congress

is the preferred option for several regional parties to form an alliance. Whilethe current Congress-led UPA coalition of 234 seats has lost two allies with atotal of 37 seats since September 2012, the ability of Congress to win backold allies or to form new ones cannot be ruled out.

Of the two allies lost, Congress is already seen to be wooing back DMK asseen by a recent Rajya Sabha election tie-up. Congress is also perceived asthe architect behind the breakup of JDU with NDA, and the party with 20seats can prove useful for Congress to survive/vote with it for the remainderof the current Lok Sabha period.

Recently Congress was able to add an ally to its UPA alliance when it tied upwith Chattisgarh party JMM in July. This follows a rout of Congress and JMM in

the state in 2009 elections when the seats of two parties combined droppedto three from 13 won in 2009 out of the 14 seats in the state as they foughtagainst each other, benefiting the NDA.

Congresss local ally policy has been visible in Andhra Pradesh as well.Congress finally approved the division of the state in two parts in July bycreating new states of Telangana and Seemandhra. The agitation for thesame had been spearheaded by Telangana Rashtriya Samiti (TRS) which theUPA is now close to adding to its fold.

Figure 27

UPA allies: New additions/potential additions to the fold

Seats Party position Total 2009 Projected 2014JDU Seen close to UPA post NDA breakup 20 15

TRS May join UPA post formation of Telangana 2 9

DMK Left UPA but recent signals suggest a move back 18 10

JMM Officially joined UPA in July13 2 3

Total 42 37

Source: CLSA

How populism in India works?To woo farmers to vote for the Shiromani Akali Dal(SAD) party, the ruling coalition SAD-BJP-led Punjab

government has been giving free power to about onemillion farmers in the state. The total subsidy nowtotals about Rs54bn as of FY13.

The Dravida Munnetra Kazhagam (DMK) party of TamilNadu in 2006 distributed free television sets to gainpolitical mileage. The 16 million TVs distributed by thegovernment cost about Rs37bn. The free colour TVscheme brought in huge dividends for the DMK in the

2006 assembly polls. It has been common in the pastto see free distribution of mixers-and-grinders for

women, fans, laptops, free rations and bridal gold forpoor families. The AIADMK and DMK, arch rivals in thestate, try to get ahead using such populist policies.

More recently the Akhilesh Yadav-led SamajwadiParty distributed free laptops to poor students. Withthis initiative, Akhliesh hopes to remain popularamong the states youth which form a significantproportion of the states population.

UPAs populism

Scheme/Measure Description When

NREGS (US$6bn) Job guarantee scheme for rural Indians Aug 2005

Food Security Bill (US$6bn) Legal food entitlement for 67% of the population Aug 2013Farm loan waiver (US$8.5bn) Complete waiver of loans given to small and marginal farmers Feb 2008

Source: CLSA

Congress has broaderappeal among alliesl

Congresss division ofAndhra Pradesh is likely

to lead to a new local ally

Congress is wooingJDU and DMK, with a

good chance ofwinning support


20/80



Figure 28

Possible UPA/NDA formation post 2014 poll

Seats UPA 3 NDA 2 Comment

Congress 123 x

UPA present allies 16 x Core allies unlikely to change position

BJP x 146

NDA present allies x 20 Core allies unlikely to change position

SP 29 x Secular issue makes it against BJP

BSP 23 23 Outside support possible to both Congress and BJP

Left 27 x Secular issue makes it against BJP

TMC x 25 May support BJP without Modi as PM

AIADMK x 25 Old supporter of NDA government

DMK 10 x Part of UPA 1 and 2, quit over telecom scam but is likely to move back to UPA

JDU 15 x Recently left NDA over Modi issue

BJD 13 13 10 years without power, no strong ideology makes it likely to side with party in power

YSR Congress 13 x Has voiced opinion against joining NDA

RJD 10 10 Outside support possible to both Congress and BJP

TDP x 9 Traditional NDA ally, may come back

TRS 9 x May formally join UPA once the Telangana creation is notified

Others 15 15 Assumed split equally

Total 304 285 UPA potentially has a wider net to choose

Noncore allies (%) 54 42 Dependence of NDA on outside allies lower

Source: CLSA

A wild card entry of the UPA or at least strong outside support may comefrom the Left parties. The CPM-led Left front was a key ally of the UPAgovernment from 2004-08. While they were seen as holding back Congresson new reforms, the Leftists did provide stability and inside support to UPA-I.Post the exit of Left in 2008, the UPA has largely been plagued with weaker /uncertain coalition partners whose support is not seen as dependable. TheLeft also suffered a 50% loss in seats in 2009 elections and since haveperformed poorly in their core states of West Bengal and Kerala. While theLeft has been seen as a propagator of the third front, its own weakenedposition may propel it to be close to the UPA again.

Political horse tradingPolitical horse trading in India has waned over theyears. It involves outright buying of MPs to gain theirsupport in forming goverments. In July 1993,Congresss Rao's government was facing a no-confidence motion, because the opposition felt that itdid not have sufficient numbers to prove a majority. Itwas alleged that Rao, through a representative, offeredmillions of rupees to members of the Jharkhand MuktiMorcha (JMM), and possibly a breakaway faction of theJanata Dal, to vote for him in a confidence motion.Shailendra Mahato, one of those members who had

accepted the bribe, turned approver. In 1996, afterRao's term in office had expired, investigations beganin earnest in the case. In 2000, after years of legal

proceedings, a special court convicted Rao and hiscolleague, Buta Singh. Narasimha Rao was sentencedto three years in prison for corruption. Rao appealed toa higher court and remained free on bail. The decisionwas overturned mainly due to doubt in credibility ofMahato's statements (which were extremelyinconsistent) and both Rao and Buta Singh werecleared of the charges in 2002. As the UPA facedallegations of bribing MPs to save its government inJuly 2008, the Jharkhand Mukti Morcha MPs briberyscandal returned to haunt it. JMM leaders - Shibu

Soren, Suraj Mandal, Simon Marandi and ShailendraMahto - told the tribunal that Congress voluntarilydonated a total of Rs10.2m to JMM's party fund.

Leftist parties are a wildcard as their poll losses

may force them to acceptan alliance with Congress


21/80



Ups and downs - The past 15 years of UPA/NDA ruleFigure 29

Real GDP growth rate

Figure 30

Inflation (WPI)

Figure 31

Fiscal deficit % GDP

Source: CLSA; Government of India

4.3

6.7

7.6

4.3

5.5

4.0

8.1

7.0

9.5 9.6 9.3

6.7

8.6

9.3

6.2

5.0

0

2

4

6

8

10

12

FY98

FY99

FY00

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

NDA UPA1 UPA2(%)

4.8

7.1

2.8 2.9

3.83.5

4.1 4.44.4

6.6

4.7

8.1

3.9

9.69.0

7.4

0

2

4

6

8

10

12

FY98

FY99

FY00

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

NDA UPA1 UPA2(%)

6.1

6.8

5.76.0

6.56.2

4.7

4.2 4.3

3.6

2.8

6.4

6.9

5.1

6.2

5.5

0

1

2

3

4

5

6

7

8

FY98

FY99

FY00

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

NDA UPA1 UPA2(%)

GDP growth has droppedsharply in UPA2 rule;

FY14 projected at 4%

High inflation is a seriousproblem for UPA2

High fiscal deficits of

UPA2 constrain stimulusresponse; sharp

deceleration in UPA1due to surging

economic growth


22/80



Figure 32

Current account deficit % GDP

Figure 33

FDI % GDP

Figure 34

Subsidies % GDP

Source: CLSA; Government of India

1.4

1.0 1.1

0.6

(0.8)

(1.3)

(2.4)

0.4

1.3 1.11.4

2.4

2.9 2.9

4.5

5.1

(3)

(2)

(1)

0

1

2

3

4

56

FY98

FY99

FY00

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

NDA UPA1 UPA2(%)

0.9

0.6

0.5

0.7

1.0

0.7

0.4

0.6

0.4

0.9

1.4

1.9

1.4

0.6

1.21.1

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

FY98

FY99

FY00

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

NDA UPA1 UPA2(%)

1.3

1.41.3 1.3

1.4

1.9

1.71.5

1.4 1.41.5

2.42.3

2.4

2.6 2.7

0.0

0.5

1.0

1.5

2.0

2.5

3.0

FY9

8

FY9

9

FY0

0

FY0

1

FY0

2

FY0

3

FY0

4

FY0

5

FY0

6

FY0

7

FY0

8

FY0

9

FY1

0

FY1

1

FY1

2

FY1

3

NDA UPA1 UPA2(%)

Surging CAD under UPA2has led to sharp INR

depreciations

FDI is more stable

Subsidies have continuedto rise under UPA


23/80

Section 2: A weak third-front government possible Indian politics


A weak third-front government possibleCongress is clearly losing its appeal among the electorate due to slowing growth,

high inflation, weak job creation and allegations of corruption. Yet the BJP hasfailed to garner enough support to win share from Congress. A so-called third front

made up of smaller/regional parties appears to be gaining a large number of seats.

Both the BJP and Congress will try to woo regional parties to form alliances. SP and

JDU both have a strong base of Muslim voters unlikely to side with the BJP. Several

others are not keen to support prime-ministerial hopeful Narendra Modi. A regional

coalition with Congress support would be the worst possible outcome given that

governments formed by notoriously unstable political alliances are, all-in-all,

incapable of pushing through a robust policy agenda - but it is feasible.

The United Front, a coalition of 13 political parties, formed after the May 1996

elections and held power for two years in one of the most unstable of political

environments, yet GDP growth averaged above trend at 6.6%, insulated fromthe ravages of the Asian financial crisis. The current account deficit improved

from 1.8% of GDP to 1%, although the central government fiscal deficit

slipped from 5.1% of GDP to 6.8%. The then finance minister, P

Chidamabaram, presented a dream budget. Heading into next years election,

however, macro headwinds loom large and India needs a strong and stable

government to push through much-needed reforms to lift consumer and

business sentiment.

Regional parties are strengtheningVarious opinion polls suggest that non-UPA and non-NDA seats will increase

from around 75 to more than 200 in the 543-member lower house known as

Lok Sabha. The big gainers are likely to include the All India Anna DravidaMunnetra Kazhagam (AIADMK) (under leader Jaylalitha) in the state of Tamil

Nadu, YSR Congress - a breakaway faction of the Congress party in Andhra

Pradesh (leader: Jagan Reddy) and Rashtriya Janata Dal (RJD) (under leader

Lalu Prasad Yadav) in the state of Bihar. RJD is likely to benefit from the

break-up between the BJP and Janata Dal United party in the state of Bihar.

Other small parties in the state of Andhra Pradesh such as Telangana Rashtra

Samithi (TRS) and the Telegu Desam Party (TDP) are also likely to gain.

Figure 35

Major regional parties - Seats in the lower house

Party 2009 14CL

Samajwadi Party SP 22 19-35

TrinaMool Congress TMC 9 23-27

All India Anna Dravida Munnetra Kazhagam AIADMK 21 18-30

Bahujan Samaj Party BSP 19 17-27

Janata Dal United JDU 20 10-19

Biju Janata Dal BJD 14 13-14

YSR Congress YSR 0 12-13

Rashtriya Janata Dal RJD 3 7-13

Telangana Rashtra Samithi TRS 6 7-12

Telegu Desam Party TDP 2 8-9

Others 34 37-41Total 150 171-253

Source: CLSA, Election Polls by Times Now, CNN IBN and India Today, ECI

United Front precedent ofhigh GDP growth unlikely

to be repeated

Ruling Congress is losingappeal, but BJP is not

gaining enough

Potential big gainersinclude SP, AIADMK, YSR

Congress, RJD and TRS

A third front waits

in the wings


24/80



Figure 36

The regional parties of India

Note: Figures in brackets indicate seats won in the 2009 General elections. Source: ECI, CLSA

Non-BJP/non-Congress government possible . . .

While BJP is likely to emerge as the single largest party, we believe it will beincapable of putting together a coalition government as many other politicalparties have reservations about the BJP leader, Modi. Several large regionalparties (SP, BSP, RJD) view Muslim voters as a large support base and wouldnot like to align with Modi - at least before the elections (see Figure 37). ButModis problems dont end with Muslim votes. He is also seen as an autocraticleader and may not be able to convince other parties to support him. HenceBJPs chances of forming a coalition government appear weak.

Congress, on the other hand, is likely to lose a number of seats (from 206 in2009 elections to 130-150 in 2014) and would likely lose the mandate to formthe next Government despite being the second-largest party. The fact thateconomy is in a downswing, this stance by the Congress party could actuallybe suitable.


Jammu & Kashmir

Himachal Pradesh

Punjab

Uttaranchal

Uttar Pradesh

Haryana

Rajasthan

Madhya Pradesh

Bihar

Sikkim

Jharkhand

West Bengal

Orissa

Chhattisgarh

Maharashtra

Andhra Pradesh

Karnataka

Goa

Tamil Nadu

Kerala

Gujarat

Assam

Arunachal Pradesh

Nagaland

Meghalaya

TripuraMizoram

Manipur

Lakshwadeep

Delhi

JKNC (3) AGP (1)SP (22) BSP (21) JD (U) (20)

RJD (3)

NCP (9)

Left (13)

BJD (14)

TMC (19)

Left (15)

SAD (4)

SS (22)

TDP (6)

YSR

TRS (2)

DMK (18)

AIADMK (9)

Most states haveinfluential regional

parties except Rajasthan,Gujarat, Madhya Pradesh

and Chhattisgarh

BJPs chances offorming a coalition

government are weak

Congress is unlikely tostep in to claim to

form a government


25/80



While a third-front coalition could claim 200-250 seats, these smaller partieshave different agendas, are likely to favour certain regions/communities and

are unlikely to have strong national policies. Furthermore, there aredifferences within the regional parties especially ones who compete in thesame states. SP would never tie-up with the BSP; AIADMK could never alignwith DMK; and the same goes for the RJD and JDU.

Figure 37

Possible ally combination of third-front government

Seats SP (29)1 BSP (23) JDU (15) AIADMK (25) Left (27)

SP (29) -

BSP (23) -

JDU (15) -

AIADMK (25) - Left (27) -

TMC (25)

DMK (10)

BJD (13)

YSR Congress (13)

RJD (10)

TDP (9)

TRS (9) 1 Numbers in brackets are expected seats in 2014 elections. Source: CLSA

We believe some of these smaller parties are likely to tie-up with one anotherprior to the elections according to their suitability to raise the bargainingpower of the group. One or two such groups may be formed with cumulativeseat collections of 70-100 seats or more. Given the nature of Indian politicsthese groups would be quite fragile and susceptible to change. Some talkshave already started, although its at a very early stage.

Mamata Banejee of TMC has already floated the idea of a federal front.According to media reports, she has discussed the idea of a federal front withNaveen Patnaik of BJD, Nitish Kumar of JDU and she is willing to talk toMulayam Singh Yadav of SP. Simultaneously, Akhilesh Yadav, son of Mulayam

has been in discussions with Chandrababu Naidu of Andhra Pradesh about apossible association. These talks would gain momentum only after theelection dates are announced and will be finalised, possibly, only after theelection results are announced.

. . . but will be unstableGiven that not all regional parties get along, the best chance to formgovernment would be if one of the stronger groups, eg, SP, TMC, BJD or RJDgot together to make up 100-150 seats and gain the support of the CongressParty, which happened in 1996. A third-front government will be unstable andneeds Congress support. A minority coalition tends to tie-up with Congressrather than the BJP due to Congresss perceived secular idealogy. Most regional

parties, especially in Bihar and Uttar Pradesh, also depend on Muslim votes andcan ill-afford a Hindu nationalist ally such as the BJP.

Small regional coregroups could form

before/after elections

Mamata Banarjee of TMChas already floated theidea of a federal front

Regional parties willneed the support of

Congress - which couldsupport from outside the

way it did in 1996-98

Regional rivalriesare strong

Most alliances will bedecided after the

election results


26/80



The Congress Party, however, would keep supporting this coalition onlyuntil it was politically suitable. The moment it sees an opportunity of

winning the next election on its own or by a larger majority, it couldwithdraw support and call for an early election. Thus, in this situation,another election in 2016 is possible.

Who will be the third-front prime minister?A third front government will have several prime-ministerial candidates andno clear leadership vision exists as of now.

Figure 38

Prime ministerial candidates for the third front according to the polls

Candidate Party State Expected Seats 2014

Mayawati Bahujan Samaj Party Uttar-Pradesh 17-27

Mulayam Singh Yadav SP Uttar-Pradesh 19-35

N Chandra Babu Naidu Telgu Desam Party Andhra Pradesh 8-9

Nitish Kumar Janata Dal (United) Bihar 10-19

J Jayalalithaa AIADMK Tamil Nadu 18-30

Source: CLSA, Election Polls by Times Now, CNN IBN and India Today, ECI

In 1996-98, a non-BJP non-Congress government ruledThe Congress Party went into the 1996 election, led by its Prime Minister PVNarsimha Rao, weakened by infighting and corruption scandals. Rao facedcharges of corruption in the JMM bribery scam (see Horse trading callout onpage 20). The Party had been plagued by a series of splits and internaldisputes. Internal party divisions were highlighted by the high-profile exit ofArjun Singh and ND Tiwari. Government credibility fell further when in late

1995 violence broke out in Kashmir. As a result of the scandals, the Raogovernment had little public support.

Figure 39

The 1996 parliamentary structure

Alliances/parties Votes (%) Seats won

BJP 20.3 161

Samata Party 2.2 8

Shiv Sena 1.5 15

Haryana Vikas Party 0.4 3

BJP Affiliates 4.0 26

Congress 28.8 140

Janata Dal 8.1 46Samajwadi Party 3.3 17

Telgu Desum Party 3.0 16

National Front 14.3 79

Communist Party of India (Marxist) 6.1 32

Communist Party of India 2.0 12

Revolutionary Socialist Party 0.6 5

All India Forward Bloc 0.4 3

Left Front 9.1 52

Tamil Manila Congress 2.2 20

Dravida Munnetra Kazhagam 2.1 17

Asom Gana Parishad 0.8 5

Others United Front - 19Other parties 18.4 24

Total 100.0 543

Source: CLSA, ECI

The ruling party went intothe elections considerably

weakened by infightingand corruption scandals

Prime-ministerialcandidate is a question of

who is more acceptable

United Front was acombination of national

front, left front and someother parties


27/80



The election delivered an unclear mandate and resulted in a hungparliament. BJP emerged as the single largest party with 161 seats and

was invited by the President to form the government. BJP leader ABVajpayee conceded that he could not arrange support from more than 200of the 543 members of parliament, and thus resigned rather than face aconfidence vote, ending his 13 day government. Ultimately, the UnitedFront put together a coalition with the support of the Congress Party togain the majority and form the government.

Figure 40 Figure 41

HD Deve Gowda P Chidambaram

Source: Party website

HD Devegowda became prime minister while his own party (JD) had won only46 seats or less than 10%. The government was barely 10 months old whenthe Congress party leader, Sitaram Kesari, withdraw his support alleging thatDeve Gowda was not keeping Congress in the loop before making someimportant decisions. After a compromise, Deve Gowda stepped down andInder Kumar Gujaral became the prime minister and the Congress partyresumed its support. Congress eventually withdrew its support to IK Gujral onthe controversy pertaining to one of the United Fronts constituents, the DMK,

for its alleged involvement with the Tamil guerrillas, which were instrumentalin killing former Congress leader Rajiv Gandhi.

During 1996-1998, economic parameters held wellBetween May 1996 and September 1999, three national elections took place.The United Front, a coalition of 13 political parties, formed after the May 1996elections and held power for two years in one of the most unstable of politicalenvironments, yet GDP growth averaged above trend at 6.6%, insulated fromthe ravages of the Asian financial crisis.

Congress withdrewsupport twice to the

United Front government

AB Vajpayees famous 13day government

GDP growth aboveaverage during United

Front rule

HD Deve Gowda was thePM and P Chdiambram the

FM in the 1996 UnitedFront government


28/80



Figure 42

Key ministers during the 1996-1998 coalition

Position Name PartyPrime Minister HD Deve Gowda/IK Gujral Janata Dal

Finance Minister P. Chidambaram Tamil Manila Congress

Defence Minister Mulayam Singh Yadav Samajwadi Party

External Affairs Minister IK Gujral Janata Dal

Source: CLSA

Figure 43

Good things that happened

FY97 FDI liberalisation continues Allowed automatic approval of FDI up to 74 per cent by the Reserve Bank of India in ninecategories of industries

FY98 Tax cuts, monetaryeasing, reduced industriallicensing

Cut personal and corporate income tax rates across the board; reduction in the Bank Rate,further de-regulation of interest rate, reduction of CRR; a number of industries freed fromcompulsory industrial licensing

FY99 Capital market reforms Permit share buybacks, enforcement of accounting standards

FY00 Industrial policy reforms Excise duty rationalisation, tax holiday for power sector, removing customs duty anomalyon steel

Source: CLSA, Economic Survey of India

The then finance minister, P Chidamabaram, presented a dream budget, oneof the most memorable examples of good governance during the period.

Despite unfavourable political conditions, the budget was pro-reform andindustry friendly; it cut income and corporate taxes; deregulated manyindustries; opened up health insurance; and removed tax on dividends. Andwhile broader economic reforms began in 1991, the issue of tax rates andtheir rationalisation came into sharp focus that year.

India, however, cannot draw much solace from the United-Front experience asevents have changed materially. This time around, India is at a centre of acurrency crisis and the economy has slowed due to a variety of domesticfactors and policy-related issues. This time a government capable of takingtough decisions, with a strong execution focus is needed to lift consumer andcorporate sentiment. We believe a weak third-front government wouldexacerbate Indias economic troubles.

Corporate andincome taxes were

rationalised in Feb-97

But the past is not a goodindicator as macro has

changed significantly

The top-four ministerscame from three parties

in 1996


29/80

Indianpolitics

Sec

tion2:Aweakthird-frontgovernmentpo

ssible

16September2013

[email protected]

29

Figure 44

Comparison of key economic parameters during various political regimes

Period Politicalenvironment

Party Partythat wonmaximumseats

Primeministers

Year RealGDP

growth(%)

Inflation(%)

Fiscaldeficit/

GDP (%)

Currentaccount

deficit/GDP(%)

Annual avg Rsdepreciation

(%)

Sensexreturns

MSCIAsia Pacreturns

(Rs based)

Relativeperformance

Jun 91 - May 96 Stable Congress Congress -232

NarsimhaRao

FY92 1.4 13.7 5.9 0.4 (38) 267 60 207

FY93 5.4 10.1 5.7 1.8 (18) (47) 46 (92)

FY94 5.7 8.3 7.4 0.4 (9) 66 57 8

FY95 6.4 10.9 6.0 1.1 0 (14) (10) (4)

FY96 7.3 7.8 5.4 1.8 (7) 3 27 (23)

May - Jun 96/Jun 96 -Apr 97

Unstable BJP/Third Front

BJP - 161 ABVajpayee/HD Gowda

FY97 8.0 6.3 5.1 1.3 (6) (0) 6 (6)

Apr 97 - Mar 98 Unstable Third Front Congress -141

IK Gujaral FY98 4.3 4.8 6.1 1.4 (5) 16 (31) 47

Mar 98 - Sep 99 Unstable BJP BJP - 179 ABVajpayee

FY99 6.7 7.1 6.8 1.0 (13) (4) (14) 10

FY00 7.6 2.8 5.7 1.1 (3) 34 66 (32)

Sep 99 - May 04 Stable BJP BJP - 182 ABVajpayee

FY01 4.3 2.9 6.0 0.6 (5) (28) (27) (1)

FY02 5.5 3.8 6.5 (0.8) (4) (4) (2) (2)

FY03 4.0 3.5 6.2 (1.3) (1) (12) (19) 7

FY04 8.1 4.1 4.7 (2.4) 5 83 55 29

May 04 - May 09 Stable Congress Congress -145

ManmohanSingh

FY05 7.0 4.4 4.2 0.4 2 16 6 10

FY06 9.5 4.4 4.3 1.3 2 74 23 51

FY07 9.6 6.6 3.6 1.1 (2) 16 18 (2)

FY08 9.3 4.7 2.8 1.4 11 20 16 4

FY09 6.7 8.1 6.4 2.4 (14) (38) (43) 5

May 09 - today Stable Congress Congress -201

ManmohanSingh

FY10 8.6 3.9 6.9 2.9 (3) 81 64 16

FY11 9.3 9.6 5.1 2.9 4 11 15 (4)

FY12 6.2 9.0 6.2 4.5 (5) (10) 6 (17)

FY13 5.0 7.4 5.5 5.1 (14) 8 17 (8)

Source: CLSA, ECI, RBI, Bloomberg


30/80



Figure 45

Statewise snapshot of 2014 election prospects

State Totalseats BJP (2009) Cong (2009) Regional party Prospects in 2014 elections

Andhra Pradesh 42 2 (6.1%) 33 (38.9%) TDP: 6 (24.9%)

TRS: 2 (6.14%)

Congress breakaway faction YSR congress likely to eat intoCongress votes and seats. TDP and TRS should gain

Assam 14 4 (17.2%) 7 (33.9%) AUDF: 1 (17.1%)

AGP: 1 (12.6%)

Recent riots, and renewal of split demands negative for Congress

Bihar 40 12 (13.93%) 2 (10.26%) JD(U): 20 (24.0%)

RJD: 4 (19.3%)

BJP may be surprise gainer post JDU split as caste allianceschange. Congress ally to gain

Chattisgarh 11 10 (45.0%) 1 (37.3%) - Strong performance by BJP CM should help consolidate

Gujarat 26 15 (46.5%) 11 (43.4%) - BJP should continue to dominate

Haryana 10 - 9 (41.8%) HJC: 1 Anti-incumbency against Congress

Jharkhand 14 8 (27.5%) 1 (15.0%) JMM: 2 (11.7%)

JVM: 1

Congress - JMM alliance can increase tally unless BJP allies with JVM

Karnataka 28 19 (41.6%) 6 (37.7%) JD(S): 3 (13.6%) Unless Yeddyurappa returns to the BJP, Congress will sweep the state

Kerala 20 - 13 (40.1%) Left: 4

IUML: 2

KC: 1 (2.5%)

Congress expected to lose due to poor image following solar scam

Madhya Pradesh 29 16 (43.5%) 12 (40.1%) BSP: 1 (5.9%) BJP should continue to dominate

Maharashtra 48 9 (18.2%) 17 (19.6%) Sena: 11 (17.0%)

NCP: 8 (19.3%)

Sena - breakaway group MNS will eat into BJP-Sena combine. Buthuge anti-incumbency against Congress

Orissa 21 - 6 (32.3%) BJD: 11 (30.2%)

CPI: 1 (2.6%)

BJD continues to dominate

Punjab 13 1 (10.0%) 8 (45.2%) SAD: 4 (33.9%) BJP-SAD combine should dominate

Rajasthan 25 4 (36.6%) 20 (47.2%) - Anti-incumbency against Congress; Upcoming state elections willbe a good indicator

Tamil Nadu 39 - 8 (15.0%) DMK: 18 (25.1%)

AIADMK: 9 (22.9%)

Left: 2 (5.0%)

MDMK: 1 (3%)

AIADMK should be a big gainer as DMK leaders have a corruptionstigma attached

Uttar Pradesh 80 10 (17.5%) 21 (18.3%) SP: 23 (23.3%)

BSP: 20 (27.4%)

RLD: 5

Remains a big joker in the pack. BJP can turn out to be asurprise gainer

West Bengal 42 1 (6.1%) 6 (13.5%) CPM: 6 (13.5%)

TMC: 19 (31.2%)

TMC expected to sweep elections as CPM has conceded ground inrecent local body polls

Other states 41 5 25

Total 543 116 206 Crucial factor in the elections will be alliances and seats

BJP allies; Congress Allies. Note: Figures in brackets are percentage of votes. Source: ECI, CLSA


31/80

Section 3: The X factors Indian politics


The X factorsWhile polls indicate that voters will deliver an unclear verdict in next years

general elections with the risk of a weak government very high, there areseveral factors that could change the electoral mood between now and then.The formation of political alliances and the outcome of state-election resultsare the two of the most important factors.

A 3-4% swing in the vote can make a big difference to election results due toIndias fragmented politics. About 70 million new voters, representing 10% ofthe electorate, will take part in the next election thanks to Indias youngdemographics, and a surprise outcome cannot be ruled out, especially withvoter turnout on the rise. Congresss unexpected win in the 2004 election sawthe market fall 17% in two days. In 2009, the market rallied 17% over two daysafter the incumbent won a convincing mandate to rule

Figure 46

X factors

Factor Description

State elections Results from the four key states of Rajasthan, MP, Delhi andChhattisgarh can alter the voter mood and tone

Small vote share swings A 3-4ppt vote swing can cause a large swing in numberof seats won/lost

Political alliances Given that small vote share swings can alter outcomes, correctpre-poll alliances will be key

States of UP, Bihar &Maharashtra

These three states account for 168 seats or 31% of totalElections will be closely fought and margin of error is very lowgiven fragmentation

Voter turnouts Have been on the upswing for recent national/state electionsHigher turnout likely from urban centres will be a positivefor the BJP

Demographics More than 70 million new voters or 10% of the total. Can cause alarge swing in the outcome.

Caste based politics A popular leader of a particular caste switching sides beforeelections can cause a large swing. E.g. Yeddyurappa in Karnataka

Emotional factors Surprisingly have caused vote swings in the past

Source: CLSA

1. Upcoming state electionsState polls are important barometers for general elections. Political

commentators will be closely watching the six state elections in Novemberto December with a view to making early predictions about the 2014general election. The outcome in these state polls will also likely buildmomentum for the winner and demoralise the loser. Additionally, pre-pollalliance activity will also likely pick-up after these elections, with thewinner getting more sign-ups.

We believe that these state polls will prove to be an early set-back for theruling Congress party. The six states account for 79 seats, or 15% in the 543seat Lok Sabha. We believe that the state-election outcome will tilt thebalance in favour of BJP as these states (see Figure 48) fall in the highinfluence zone of the BJP. The BJP is the strong incumbent in two of thesestates - Madhya Pradesh and Chattisgarh - with back-to back wins in 2003

and 2008. Anti-incumbency against Congress in Rajasthan and Delhi mightalso work in the BJPs favour.

Six states going into pollsin Nov and Dec will give

some early signs

The six states account for15% of Lok Sabha seatsand we believe BJP willdo well in these states

Several factors can drivechanges in the election

result outcomes betweennow and then

Small vote-share swings

can influence electionresults substantially


32/80

Section 3: The X factors Indian politics


Figure 47

State assembly polls due in November/December 2013

Source: CLSA, ECI

Figure 48

Upcoming state elections

State Incumbent Lok Sabhaseats

Opposition Lok Sabhaseats

TotalLS seats

Why BJP should gain

Jammu & Kashmir J&K NationalConference

3 Congress 2 6

Delhi Congress 7 BJP, Aam Admi Party 0 7 Anti-Incumbency, deterioratinglaw and order

Rajasthan Congress 20 BJP 4 25 Anti-incumbency

Madhya Pradesh BJP 16 Congress 12 29 Good performance under BJP

Chhattisgarh BJP 10 Congress 1 11 Good performance under BJP

Mizoram Congress 1 Samyukta Socialist Party 0 1

Source: CLSA

2. Small swings in vote share cause large swings in seatsCongress has a more national reach than the BJP and thus BJPs votes aremore concentrated. The pos

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