Skip to main content

How much will a Third Front govt. affect the economy?

Business Standard has a debate on this topic.

Amit Tandon, Managing Director of Fitch Ratings India, presents the optimistic view:

Will a Third Front government spell economic disaster? Will steel plants shut in Jharkhand? Will companies stop making cars in Tamil Nadu? Will software no longer be written in Bangalore? Will ships not sail from Mumbai? Will doctors not operate? Will teachers not teach? Go back in time. Did FIIs not come back, after vowing to stay away from India, after we exploded a nuclear device? Did banks not shut shop in the 1990’s, only to line up on Mint Street, wanting to open branches again? The pace may vary, but a billion-plus people will always create their own forward-momentum.

Nirmal Jain, Chairman and Managing Director of India Infoline, is highly concerned about a fractured outcome:
We are passing through a massive global financial crisis. Under these circumstances, if the country’s financial management is in the hands of corrupt politicians who are in a hurry, it can cause grave damage to the economy. Worsening macro-fundamentals in a shaky global financial world will halt the flow of capital into India. What makes it worse is that we are competing with China where, thanks to continuing reforms and the government’s ability to execute its plans efficiently, the investor-environment is more favourable.

This lower flow of foreign capital will have an impact on the economy as well as on the stock markets. On the economy front, we badly need the flow of investments in infrastructure and industry to continue since this is what will help sustain growth and generate employment. For the stock markets, whether we like it or not, FIIs drive the sentiment and retail and domestic investors follow them. Many political observers feel that if a Third Front government comes to power, it may not last for more than a year. Apart from the costs of holding another election, the greater burden on the exchequer will be the disruption and uncertainty in fiscal and economic policies.

In another BS column, Akash Prakash of Amansa Capital, touches upon this topic from a stock market perspective:

Firstly we have the elections staring us in the face. By all accounts this is the most open election ever, with at least six leaders in the running to become PM. Nobody is quite sure how it will turn out, and as of today any of the three formations could come to power. I am not in the camp that politics do not matter. They may not have mattered when the world was growing at 4-5 per cent, and India had enough of a tailwind through heightened risk appetite and the benefits of past reforms to grow at 8 per cent-plus. However, they matter today, when the world is in the midst of a recession, we have structural fiscal issues and strong economic decision-making is the need of the hour.

India has enough policy-based low-hanging fruit, that its growth can be protected at a relatively high level. But will we get the policy reform? The only way that India can be re-rated upwards in terms of valuation multiples is if we get strong policy action. Depending on which formation comes to power, and who is the PM, there is no guarantee that we will get the dose of policy action that we need. There is not an insignificant probability that we get stuck with a very weak and ineffectual government that may not even last a full term. Such an outcome is a recipe for inaction and policy drift.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in

Popular posts from this blog

VC Interview: Shailendra Singh of Sequoia Capital India

In a recent interview to Venture Intelligence, Shailendra Singh discussed some of the firm’s newer investments in the early stage segment including in the online payments space, the progress at a few existing portfolio companies and the active role the firm is playing in helping its portfolio companies scale and succeed in India and globally. Prior to joining the firm in 2006, Singh was a strategy consultant at Bain & Company in New York and before that, an entrepreneur in the digital media industry. Venture Intelligence: How does Sequoia go about identifying potential early stage investments in India? Is there anything different you are doing today than, say, a couple of years back? Shailendra Singh: There is a lot more focus on technology investing and early stage investing. In general, as you might remember a few years ago, we were doing primarily growth investing but in the past 18-odd months, we have had a very strong focus on early stage and that’s continuing. In terms

ChrysCapital, Motilal Oswal PE & Sequoia named PE-VC Firms of the Decade

Press Release ChrysCapital, Motilal Oswal Private Equity and Sequoia Capital India have been named the top Private Equity & Venture Capital investors in India during the last decade, as part of Venture Intelligence’s APEX Awards. The Venture Intelligence “Awards for Private Equity Excellence” (APEX) is dedicated to celebrating the best that the Indian Private Equity & Venture Capital industry has to offer.  While ChrysCapital won the “Private Equity Investor of the Decade” award, Motilal Oswal Private Equity was feted as India’s “Growth Capital Investor of the Decade”. The Indian arm of the storied Silicon Valley VC firm, Sequoia Capital, was named the country’s “Venture Capital Investor of the Decade”. The APEX Awardees are selected based on both Self Nomination by the participating PE-VC firms as well as "crowd sourced" nominations and voting from the Limited Partner, PE-VC and advisory communities. (The main criteria were Exit Track Record, New Fund Raises & Fo

Ambit tops League Table for Transaction Advisors to Private Equity deals in 2019

Ambit Corporate Finance topped the Venture Intelligence League Table for Transaction Advisor to Private Equity Transactions for the year 2019. Ambit advised PE deals worth $2.4 Billion (across 4 qualifying transactions) during the period. Citi ($1.1 Billion across 2 deals) and  Avendus  ($969 million across 12 deals) took the second and third spot. Edelweiss Financial Services ($758 million across 9 deals) and  PwC  ($708 million across 15 deals) completed the top five in 2019.  The  Venture Intelligence League Tables , the first such initiative exclusively tracking transactions involving India-based companies, are based on value of PE and M&A transactions advised by Financial and Legal Advisory firms. Ambit Corporate Finance advised the $1.9 Billion buyout of Pipeline Infrastructure from Reliance Industries   by Brookfield Asset Management  and the IFC and I Squared Capital-backed   Cube Highways' acquisition of Delhi-Agra Toll Road from Reliance Infrastructu

Jio deals help PE investments climb 12% in H1'20 to $18.8 B

Press Release With Reliance Industries' communications unit Jio Platforms attracting 51% of the investment value, Private Equity-Venture Capital (PE-VC) investments in India rose 12% during the first 6 months of 2020 to $18.8 Billion (across 341 deals), shows data from  Venture Intelligence , a research service focused on private company financials, transactions and their valuations. Investments totaling over $9.5 Billion in Jio by a troop of global private equity firms, following social media giant Facebook's $5.7 Billion mid April investment in the company, helped overall PE-VC investments better the $16.8 Billion (across 503 transactions) invested during the same period in 2019. (Note: These figures include Venture Capital investments, but exclude PE investments in Real Estate).   Jio Platforms' $9.5 Billion Private Equity haul (excluding Facebook’s strategic investment) was led by Middle Eastern and American investors with KKR, Saudi Arabia's Public Invest

Inventus, Sixth Sense, Blume & Norwest win Apex'20 Venture Capital Awards

Inventus Capital Partners, Sixth Sense Ventures, Blume Ventures and Norwest Venture Partners were voted the top Venture Capital investors in India during 2019. The Venture Intelligence “Awards for Private Equity Excellence” (APEX) is dedicated to celebrating the best that the Indian Private Equity & Venture Capital industry has to offer. Other 2019 winners in the VC segment included  Axilor Ventures which was voted   the  Accelerator of the Year for the second year running, 3one4 Capital (VC Fund Raise of the Year) and Innoven Capital (Venture Debt firm of the Year). The APEX Awardees are selected based on both Self Nomination by the participating PE-VC firms as well as "crowd sourced" nominations and voting from the Limited Partner, PE-VC and advisory communities. (The main criteria are Exit Track Record, New Fund Raises & Follow-on Funding Rounds for Portfolio Companies).    " It is an honour to be recognised by entrepreneurs and investors as