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This article is more than 2 year old.

Ruchir Sharma: Ongoing Lok Sabha elections the most unpredictable ever

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Global investor and author Ruchir Sharma says caste divide is much stronger in Uttar Pradesh at present and the voting is completely dependent on caste.

Ruchir Sharma: Ongoing Lok Sabha elections the most unpredictable ever
Global investor and author Ruchir Sharma says caste divide is much stronger in Uttar Pradesh at present and the voting is completely dependent on caste. Fresh from his 28th election trip, Sharma also sees a major saffron surge in West Bengal and expects BJP vote share crossing 30 percent in the state.
The author of Democracy on the Road has been chasing election campaigns in India for over two decades. On the basis of his observations from his recent trip, Sharma says the ongoing Lok Sabha elections are the most unpredictable anyone has ever seen in the country so far.
Watch the full interview here.
“While the BJP is fighting the elections on Prime Minister Narendra Modi's name, I don’t see the party’s vote share rising and it might lose some seats in the Hindi heartland,” he observed.
Edited excerpts from the interview:
Q: The 28th trip, 25 years of tracking Indian elections, what really is different this time around? We have been hearing all of this business of silent waves, undercurrents, the Modi shinning wave, what have you picked and is this any different from the last several elections that you have tracking?
A: There is a good Hollywood line for this which is ‘Nobody knows nothing’ and I think of that when it comes to predicting the seat numbers, that is really where it is. I have never seen an instance where the outcome in terms of what people are thinking may happen in this election is as wide as what has been forecast for this election. You have people who passionately believe that the BJP will get up to 300 and you have some people who actually believe that the BJP will be stuck at 150-160, and this is 2014 all over again.
I have never seen such a wide range of outcome that has been spoken about. This brings me to the point about what the defining characteristic of this election is, which is that India has never been this polarised and it is polarised at every level. Polarised at a caste level, at a religious level, at a regional level and also at a leader level. Right in terms of the people, either they love Modi or they absolutely dislike him.
Q: Given what you have just pointed out, would it not mean advantage BJP at this point?
A: No, I mean it has advantaged BJP in the sense that it starts with such a great lead. Last time it got 282 seats. So from that standpoint, it has advantaged BJP. But the entire issue here is that, like in a state like Uttar Pradesh, the possibility in terms of what may happen is just sort of unpredictable and very unpredictable because of the fact that it is completely lined up along caste lines. The caste equation is such that if you get just a one percent swing, left to right, that could change the entire election outcome.
Let us say the BJP gets one percent vote in terms of the total vote, its seats could go up to 230 plus. If the party gets 1 or 2 percent less than what people think, the number of seats could drop below 200. The way the election looks will be so dramatically different with just one percent swing either way. Therefore it is so hard to call as to which way this election is going. So the advantage BJP is because they start off with such a massive lead, compared to where the Congress especially was.
Q: It depends on which WhatsApp group is sending you the numbers.
A: Exactly, so this brings me to a very important point about polarisation. Everybody who thinks that the BJP is going to get 300 or let us say cross the majority mark or even get close to it, about 99 percent of them tend to be BJP sympathisers anyway. The people who think that the BJP is dropping well below 200 tend to be the anti-BJP lot. So what has happened in India is basically that it has become so polarised that there is no objectivity left in terms of that what exactly is going to happen in these elections. Everything is viewed through the pro-BJP or anti-BJP frame.
In UP, we found exactly the same. As we have discussed in the past, Indians typically don’t just cast their vote, they vote their caste. That has been a very old saying of Indian politics and it has never been sort of true than in UP. This time I felt that the caste lines are even more.
Q: So they are stronger?
A: They are even stronger this time. All we needed to do in this UP trip, and by the end of the day it was quite frustrating, is that you ask a person what the surname is and then you can sort of have a conversation with them about anything, but the surname will reveal to you as to which way they are going to vote.
Q: When we last spoke, which was in February, and the big change that has happened since then is Balakot and the sort of nationalism narrative that has driven the campaign so far. However, you were very clear, it was an advantage for the Mahagathbandhan. Do you feel that way now?
A: One thing which has happened since we spoke has been the formal entry of Priyanka Gandhi in UP politics.
Q: You think that is an advantage for BJP?
A: In a way, it may be undermining the Mahagathbandhan in Uttar Pradesh. That is something which is very hard to feel but that is the perverse effect because the anti-BJP vote may be getting split a bit. So, it is a perverse thing that she came in there thinking that she is going to revive the Congress but the Congress starts off with a vote share of just 5-6 percent. If that goes up to even 10 or 12 percent, most of that will be coming from the Mahagathbandhan’s traditional vote base.
So, both Mayawati and Priyanka and the Congress party may have erred here is not going together if their objective was to completely defeat the BJP. If the objective of the Congress party is that we want to fight to win the assembly election in 2022 and revive the national party in UP, that is a very different thing. However, from a 2019 perspective that is something which I think maybe a sort of mistake that may have been made by the opposition.
Q: Priyanka Gandhi is the X-factor as far as UP is concerned, you do not know whether it is going to cut the votes as far as the Mahagathbandhan is concerned but what we have seen with Akhilesh Yadav and Mayawati putting on this show of strength, coming out there, speaking for each other, telling their constituents to vote for the other person, Mayawati specifically taking on Modi when he came out and said that they are probably trying to undermine you and you will be left with the rug being pulled out under your feet on May 23. What is your sense on that chemistry? Not just the arithmetic but the manner in which the arithmetic and the chemistry is coming together?
A: We went for some rallies, we went to Mayawati’s rally when we were there, I think that is working well. As far as those two blocks are concerned, I think that it is working well and you could make that out from the conversation with people. When you speak to anyone who is a Yadav or anyone who is a Muslim, no matter who their candidate is, whether it is from the Samajwadi party or from Mayawati’s party or the RLD, they are going to vote very clearly for the Mahagathbandhan. So, there is complete vote transfer happening as far as that is concerned.
On the other side, you speak to anyone from an upper caste, you speak to any non-Yadav, OBC, they are all voting for the BJP. If you do the arithmetic, you total up these castes, it is exactly the same vote base. Therefore this state has become so hard to call.
When I spoke to you last time I felt almost that going back to Uttar Pradesh did not make sense. But a couple of factors have changed, one is Priyanka Gandhi’s entry which has complicated things for the opposition and the other thing has been what has happened on the national security front because now that has become another factor which at least for the BJP supporters it is something which has galvanised them. I think this is what is my big takeaway as far as this trip is concerned. We all sitting in these urban cities want to fantasise about India having moved towards a post caste world. But what I find is that the caste lines are as strong as ever, possibly even stronger today as far as UP is concerned.
We have moved to something that I call or which is known in the west as the post-truth world. There is nothing like the truth anymore. You speak to a voter, you ask them how much has been done for development, the answer you will get is completely dependent on the caste. You speak to a voter who is from the upper caste or as I said the BJPs vote bank, they will point out to you about the toilets which have been done, the electricity, the roads, national security, Modi and how he has improved India’s image abroad. You speak to the other side and they will tell you how nothing has been done by this government, the toilets aren’t functioning properly, the water doesn’t come to these toilets, so it is like what is the truth, you do not know the truth anymore and this is playing out at a national level as well when it comes to GDP numbers. It depends on whose supporter you are and that is the way the GDP numbers are also read. So, there is nothing like the truth or objectivity anymore. It is about which camp you are from and that determines what is your fact. So, you cherry pick the facts very conveniently.
Q: The Yogi factor. We talked about the Modi factor and it seems like the Modi popularity is intact more or less, but what about the Yogi factor, is that a plus or a minus for the BJP going into the elections?
A: I think possibly negative because when we spoke to people out there, I think he doesn’t have much appeal as far as they are concerned. So, this election is being fought completely on Modi’s name, not even the candidates. A lot of the people we spoke to told us that the local candidates have a lot of anti-incumbency against the local candidates, there is anti-incumbency against the state administration but the Modi factor totally overwhelms those kinds of local factors. So, the BJP is very clear. The opposition too is playing up the anti-Modi thing.
Q: Is the ‘one nation one leader’ narrative working on the ground?
A: Regardless of what the actual outcome is, as I have argued previously in my interviews with you and also in my book, that just cannot work in India - the one nation one leader narrative – because even if the BJP ends up coming back to power this time with, let us say close to an absolute majority, its vote share is unlikely to increase very much, its vote share will still be about 31-32 percent or something like that in that ballpark. So, with that vote share, it tells you again that there is only that much a national party can expand as far as India is concerned and that is what is happening in this election too. The BJP will lose some seats in the Hindi heartland but pickup seats in West Bengal and in Odisha because it just hasn’t been there before in a sizeable way.
Q: Let us talk about Bengal and Odisha because that is what we hear from the BJP that if at all and they don’t believe that they are going to lose any seats in UP, they believe they are going to be able to replicate that. It might be another as, Praveen Chakravarty says, it is unlikely that we will see a 2014 kind of black swan event, but what did your travel through Bengal tell you? Is Mamata Banerjee going to be able to retain her fort?
A: What is happening in Bengal in terms of vote shares is very clear which is the fact that there is an incredible saffron surge that is happening in Bengal. The BJP’s vote share is likely to possibly cross even 30 percent. That is a staggering development. I can’t remember any large state where one party which was so dominant there, the left has disintegrated so quickly after having ruled the state for 34 years all of a sudden you disappear and I can’t recall of any party which has surged so massively in a short span of time. Even the 2016 elections we went for those assembly elections to Tamil Nadu and West Bengal and I remember like in West Bengal it was our 24th election trip and the vote share of the BJP was just 10 percent and now it is going to surge above 30 percent so that is huge.
Q: How much will that translate into seats because their bet is that they are going to do 20 plus seats in West Bengal?
A: One thing we should discount at this stage is what politicians tell you on air. They will all tell that they are winning. The consensus among the crowd in Kolkata was that the BJP sort of gets about 10-12 seats or so, that is the consensus. It takes a while for vote shares to translate into seats is concerned, there is a critical threshold for that.
There is a very interesting thing in West Bengal, it is inverse of the rest of the country. Rest of the country there is a perception and a lot of liberals have been saying this, that there is a big fear factor which the exit polls and other interviews with voters is sort of underestimating. There are lot of people who are not speaking the truth because of a fear factor because they are concerned about you don’t want to sound too anti-Modi or sound too anti-BJP, that is the fear factor as to if all these opinion and exit polls end up being wrong, it will be because of that. In West Bengal it is almost the opposite, there is a fear factor of Mamata, which is that people are not that keen to say anything officially too much against Mamata because she is so dominant out there.
We went to Mamata’s rally in Barrackpore as far as West Bengal is concerned and it was interesting to see the parallels between her and Modi in some way, although it sounds a bit extreme.
A big theme I have spoke about with you in the past is the poor oratory skills of regional leaders in general or leaders outside of the Modi, Atal Bihari Vajpayee but if there is one person with great oratory skills which almost matches the way the Modi is able to work up the crowds among the regional leaders, it is Mamata Banerjee. Both are single leaders, both have good oratory skills and there is fear factor that they both sort of instil in their regions where they dominate. So, that is what makes this election even harder to call.
Even here, I speak to corporates out here and all of a sudden when they have to speak about the government the tone changes, it becomes hush, there is almost a fear that who is listening into us and stuff like that. In West Bengal I saw shades of that as well as far as speaking anything against Mamata Banerjee was concerned.
To me, the interesting finding as far as Bengal was concerned is that it is inverse of what is happening in most of the BJP states.
Q: Do you believe that we are going to see a significantly fractured mandate?
A: I have given you what the consensus is as far as we are concerned. I think that the betting market is at about 240 or something I am told, so it is somewhere in that ballpark. The conventional wisdom and the international media has also sort of given up on this election because they have sort of made up their mind that Modi is coming back and he is coming back with a reduced majority but he is coming back, that is the conventional wisdom. However the Indian elections – tell me when has the conventional wisdom not been surprised? Either with the winner doing even better than what people think or you end up getting a complete reversal. So, that is what makes this election so hard to call.
As I said the way the verdict is read will be so different if the BJP let us say gets more than 240 that the market is expecting. On the other hand if the BJP falls short of 200 it looks so different and my point is it is just 1 or 2 percent that could change the entire direction. So, therefore anyone who is going to predict with great certainty – it is a favourite parlour game, every conversation started is like what is your number? That is the way that any conversation starts here. So, that is what I think it is such a difficult game to call. So, therefore I tell those people nobody knows nothing as far as the numbers are concerned. However what we do know is that more than the fractured mandate what I am concerned about is polarisation that we have seen. I don’t think this ends with this election. I think that this polarisation is something which is now here to stay, I saw it in UP, these lines are so hardened now that this is not going to end or be resolved with this election because of the fact that you are still going to end up getting, it seems as if the opposition will emerge somewhat stronger from this election but it is still not going to be like a resolution of one way or the other and people are going to remain as polarised as ever and keep thinking that the truth is in terms of the way that they see it from their vantage point, there is no objectivity.
Q: You talked about the foreign media and the perception of the foreign media with respect to the election. You believe that they think that the election is already called in favour of the BJP. We have just had the Time Magazine put out Prime Minister Modi on the cover, what do you make of that and what is the perception overall with respect to India?
A: The international media is paying very little attention to this. Time Magazine has put it on the International cover, in the domestic edition basically it is not a story and it is not a big story at all.
Q: Why not?
A: I have experienced this myself that I end up writing in the US and whenever I have tried to write something on India the traction I get from those columns I write, they end up getting very little traction. So the interest in India and the interest in this election, in general, is extremely low. US television has completely ignored it. Like everyone does one check the box story- like a news story. So this is the bubble that we need to get out of. We are obsessed with it out here and we should be because this is such a sort of great exercise and it has such great characters, so much great colour we have so we should be obsessed with it. But outside, like this attention on what Time Magazine is doing is etc, I just find it so sort of funny when I see that thing that some international cover makes a story here in this media circles it is basically a non-story back in the US, that is where I feel that like in New York and stuff like that to really get anyone interested if I talk to them about what is happening on the trade war just now, it is huge. However, the interest in this election particular I found has been extremely low. Last time in 2014 there was some curiosity value.
Q: But maybe because the expectation is that they will return?
A: They will return and he is sort of a known quantity by now and the international media has also soured on him. If you look at the narrative of the international media in general, all the cover stories that you are talking about they all have a negative slant from the economists.
Q: But that has more to do with the polarisation issues?
A: Yes and also the economic side. That is what I am trying to say that even the Wall Street Journal which is a very right of the centre paper and they focus more on the economic track record, they hailed him. I myself wrote when Modi first came to power in 2014 that maybe this could be India’s Reagan moment.
Q: So, you are clearly disappointed because it hasn’t been anything close to that.
A: I want India to get more economic freedom. We have so much political freedom, we enjoy that. I feel that the role of the state in this economy is far too large. We have spoken in the past that no one will take on things like the banking sector, why won’t it be privatised, there is far too much statism out here in the corridors of power out here. There is too much faith in government control.
So, my disappointment continuously with the Indian leadership at the centre which predates even this administration is that they just haven’t done enough to give people more economic freedom.
Q: That was the hope that this government would undo what the UPA was unable to do or did not have the political will and it is interesting that the Congress now in its manifesto talks about things like privatisation. From a markets perspective and a larger economic reform perspective, assuming the fact that it is going to be what the market is pricing in – an NDA government at the centre once again, what is it going to mean?
A: Nothing. The way I see it, the connection between politics and economics and markets in this country is very tenuous.
I did this study where we basically looked at about 100 emerging market elections over the last 30 years to see how does a stock market behave once a new leader comes to power. What we found was that when a new leader comes to power the first two years tend to be the strongest as far as performance is concerned, you get the maximum outperformance of that market in the first couple of years. The longer the leader stays in power, that effect begins to wear out. There are very few emerging market leaders in fact who have completed a second term, so the data is a bit patchy. However what our data basically shows is that second term of a leader, there is virtually no outperformance of that stock market.
Q: So, more sideways?
A: From a purely political standpoint the maximum outperformance happens in the first couple of years and this Indian stock market has followed exactly that path. The outperformance of the Indian stock market compared to the emerging market peers over the last 5 years has been roughly about 20 percent and that is exactly in line with other instances when a new leader has come to power. If it follows the history then in the second term typically the outperformance tends to be virtually nothing. So, that is just a historical template. If he does come back to power the question is why should he change? Unless there is a major change in government or he is forced to get in more allies and has to change course, he will likely to see it as a validation of what he has done over the last 5 years and keep thinking that all these critics are like a small niche minority and so why should we really care about what they have to say. That is how he even reacted to the criticism on demonetisation when he was able to end up winning the UP elections a few months later.
As far as financial markets are concerned, what are the lessons from history? One, the connection between economics and politics in this country is very tenuous. Two, that the stock market typically reacts very violently to any major election upset or even any major surprise but that effect very quickly wears out. We saw this in the last few elections. Even in 2004 we had a shock result. So, let us say we end up getting a shock result this time which is that there is a repeat of 2004, the stock market may fall heavily for a couple of weeks but after that, it goes back to tracking global factors. Even the past few days the stock market weakness has taken place and because I have been in India I am getting this questions that are people getting more nervous about the elections and stuff like that, do they have the exit poll numbers and stuff like that and I say that is complete nonsense. All emerging markets over the past week have reacted very negatively to the trade war coming back and India has done exactly what other emerging markets have done. So, for us to attribute this again in terms of what is happening with the elections to me is complete nonsense.
Q: Assuming that if it is Prime Minister Modi that returns to office for a second term, then it would be seen as a validation of the kind of economic policies that the government has taken forward. But what would your expectation be? You cannot say public sector banking reforms because we have discussed that ad nauseam but outside of that?
A: I do not expect anything major or anything new to happen from a policy initiative. If he comes back to power and if the consensus is correct the best I can hope for is that Modi returns to the kind of talk that he used when he used to meet us back in Gujarat.
Q: Development?
A: More than development I would say he would very strongly recommend giving states much more power rather than centralising too much. He would bristle at the notion of having to go the planning commission but the model he has followed here at the centre has been very different. He has followed more of a Gujarat model at a national level of doing things much more in terms of controlling, like centralising, that may work at a state level but in a heterogeneous diverse country such as India that doesn’t work at a central level. So, my best hope is that rather than trying to attempt any big bang reform at the centre which is very unlikely anyway, he sort of gives more power to the states and sort of goes back to the lessons he learnt as the Gujarat chief minister which is that India is better off with one state miracle at a time rather than trying to engineer something big at the centre.
Q: This is your 28th trip, you have spent a week out travelling between West Bengal and Uttar Pradesh, what has been the key highlight for this time around outside of the fact that you believe this is one of the most difficult elections to predict and of course an election that clearly tells you that polarisation at every level is working very strongly, outside of that what is the single biggest highlight?
A: For me, these election journeys are really a way of seeing real India. There is something very really seductive about this. If you ask me what my highlights were, I really enjoyed our meeting with Raja Bhaiya in his den. Here is this sort of larger than life figure referred to as the don of that area but to actually go to his place and the entire build-up of the crocodile farms at the back and ostriches in his back garden and to see all that, I think the entire set it is that kind of colour and then to speak about his name out there, for example, we met somebody in Pratapgarh which is his sort of den and he has put up a candidate here and there when we asked somebody what do you think of Raja Bhaiya, he said here you can talk anything against Modi but you cannot say anything against Raja Bhaiya. You ask a police person there that there is so much violence going on out here, what do you have to say and his answer is violence keeps on happening here, this is Raja Bhaiya’s area so if one or two murders happen then what is the big deal about it. So, it is that colour.
When I come back from the trip all the phone calls are what is your number but for me, it is the colour that how is exactly India functioning. So, I am very motivated that somebody needs to write an entire script on Raja Bhaiya kind of figures which we saw in serials such as Mirzapur but to see it actually play itself out was a fascinating thing. For me that is the highlight, India comes alive at election time and to go out and see India in its various colours and the conversations you have with people, some really heartbreaking stories as well about the level of poverty that you still get to see in some of these places but also the hospitality like we have these scenes where an entire entourage is entering a village and sometimes these villages don’t know what exactly is going on, who are these 20 people who have descended on us all of a sudden and you have got these very comical scenes where this Brahmin person is sort of out there sleeping in his chaddis etc and all of a sudden he has to wrap himself up because these 20 people have descended in his village and then he is so hospitable then, they are willing to offer you anything, incorporate you in their celebrations, so it is that colour for me which is what has made this such a fascinating election trip. Also coming up with these big-picture conclusions about polarisation and how exactly is India functioning. The one big economic takeaway and this sort of tells me about what the entire problem with India’s development model is, for example, this entire problem about the cows, we have discussed the cow story out here and the ban on cow slaughter and the negative consequences it has had from a community standpoint, religious standpoint but that is a huge economic story. If there is anything which is undermining the BJP support at the margin out here it is this entire cow menace. You have got this thousand of cows now which are like roaming stray and they are roaming all over the fields and damaging the crops.
Q: Irrespective of what the election verdict would be, no one is going to attempt to touch that problem.
A: It has become a holy cow issue. Nobody really wants to touch that issue but how it disturbs the entire eco-system, it is not just about hurting some exports and stuff like that but you got sort of women complaining to us that they feel more unsafe at home now because men are being forced to sleep on the fields to protect the crops from being damaged. The whole eco-system has been disturbed because of this one decision. So it is those sort of insights that you get to see.
Now the governments or any government are being forced to spend more on building cow shelters, should that really be a development priority at this stage when we are building more infrastructure? That is the sort of thing that again tells me as to why India can never be a China. We just don’t have our development priorities like China in some way and maybe we can’t just because of the heterogeneity of this country we can’t. However the fact that we are spending all this money now in cow shelters and even then not succeeding and damaging the economy rather than being focused on getting the maximum topline growth which is what China does, again tells you in one snapshot as to why we will never grow at a rate of 9 or 10 percent.
Q: You come away feeling hopeful which was what you felt that last time we spoke that in India democracy is not in retreat, in fact democracy is thriving?
A: It is thriving and we have seen it. It is sad that polarisation is so deep but the fact that we are still having such a competitive election even though the BJP has an incredible advantage when it comes to their spending power, its influence over the institutions, influence over the media, the fact that we are still having such a competitive election where it is not a one way bet like Russia or Turkey going into an election still gives me hope that no matter what the outcome, at least the process is still sort of thriving out here and the fact that a decent fight has been put up by the opposition  even though they have made some tactical mistakes that we have discussed, does give me hope that no matter what we say I think democracy is thriving and I look forward to be back on the road when we have the next election in India.
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