Why Lalu Yadav had a change of heart towards Nitish Kumar

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Lalu Prasad Yadav has gulped “poison” but is still alive. As he told reporters yesterday: “I want to assure the secular forces and the people of India that in this battle of Bihar, I am ready to gulp everything. I am ready to consume all types of poison. I am determined to crush the hood of this snake, this cobra of communalism.”

The p-word is essentially a metaphor for Lalu accepting that Nitish Kumar, the current chief minister of Bihar, be projected as the chief ministerial candidate in the assembly elections scheduled in the state later this year. The Rashtriya Janata Dal (RJD) leader had resisted Nitish being projected as the chief ministerial candidate until now.

But with Nitish declaring on June 7 that he no longer wanted an alliance with the RJD for the forthcoming polls, Lalu had no other option but to agree to Nitish being projected as the chief-ministerial candidate.

Mulayam Singh Yadav, the president-designate of the proposed new Janata Party, welcomed this decision of Lalu and said: “I am very happy about the unity of Lalu Prasad and Nitish Kumar. Kumar will be the chief ministerial candidate for Bihar. Laluji has proposed Nitish Kumar’s name for the chief ministership. Laluji said he will campaign.”

Lalu may want us to believe that he drank the poison to crush the cobra of communalism, but that is not really the truth. If Lalu had to continue to stay relevant in the years to come he needed to ally with Nitish. He had no other option.

The electoral numbers of the 2014 Lok Sabha polls give us the answer. Data from the election commission shows that the combine of Bhartiya Janata Party (BJP) and Ram Vilas Paswan’s Lok Janshakti Party (LJP) got 36.36 per cent (BJP = 29.86 per cent + LJP = 6.5 per cent) of the valid votes polled during the Lok Sabha elections last year.

The RJD and the Congress Party which fought the elections together got 20.46 per cent and 8.56 per cent of the valid votes respectively. Nitish’s Janata Dal(United)(JD(U)) which fought the elections separately got 16.04 per cent of the valid votes. Hence, the vote percentage of JD(U) + RJD at 36.5 per cent was slightly more than that of the BJP + LJP at 36.36 per cent. Further, RJD+JD(U)+Congress got more votes than BJP + LJP. Nevertheless, since RJD + Congress and JD(U) were not in alliance, these votes did not translate into Lok Sabha seats.

The RJD won only four seats in the state and its alliance partner the Congress party, won two seats. The JD(U) also won only two seats. The BJP on the other hand won 22 seats whereas its partner LJP won six seats.

As is obvious from the data, the LJP won six seats with 6.5 per cent of the votes polled, whereas the RJD won four seats with 20.46 per cent of the votes polled. This was simply because the LJP got its alliance right.

Obviously Lalu understands this electoral math well enough. And given this, he is ready to let Nitish be projected as the chief-ministerial candidate, his initial reluctance notwithstanding.

Interestingly, in the by-elections that happened for 10 assembly seats in August 2014, the JD(U) came together with the RJD+Congress and took on BJP+LJP. The data from the election commission shows that the RJD+Congress+JD(U) got 45.6 per cent of the total votes polled. The BJP+LJP got 37.9 per cent of the votes polled.

Given that, JD(U) was not fighting the elections separately, the votes polled translated into assembly seats as well, unlike the Lok Sabha polls. The RJD+Congress+JD(U) got six out of the ten Assembly seats. Hence, there is some evidence of the alliance working.

Lalu and Nitish have had an “edgy” relationship for the over four decades that they have known each other. Nitish became the chief minister of Bihar in 2005, after managing to dislodge Lalu, who had ruled directly as well as through proxy (through his wife Rabri) for a period of 15 years and brought the state to the point of an economic collapse.

Ironically, for the first half of his political career, Nitish propped up Lalu, even though he knew that Lalu wasn’t fit to govern. Journalist Sankarshan Thakur put this question to Nitish in his book Single Man: “Why did you promote Lalu Yadav so actively in your early years?” he asked.

And surprisingly, Nitish gave an honest answer. As Thakur writes “‘But where was there ever even the question of promoting Laloo Yadav?’ he mumbled…’We always knew what quality of man he was, utterly unfit to govern, totally lacking vision or focus.'” Given this, what Nitish thinks of Lalu is totally on record.

So why then did Nitish decide to support him? “‘There wasn’t any other choice at that time,’ Nitish countered…’We came from a certain kind of politics. Backward communities had to be given prime space and Laloo belonged to the most powerful section of backwards, politically and numerically.'”

It is now Lalu’s turn to return the favour to Nitish. Also, Lalu knows that with the alliance of three parties, his party will have as many seats in the Bihar assembly as Nitish’s JD(U) or probably even more. This will allow him to extract his pound of flesh on the pretext of allowing the alliance to survive. And that is what he is interested in. Hence, what Lalu has drank is an ‘elixir’ and not poison, as he would like us to believe.

The column originally appeared on DailyO on June 9,2015 

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One year later: A mixed bag of acche din for the aam aadmi

narendra_modiMost communication that works is essentially so simplistic that even a school going child can understand it. Narendra Modi’s pitch in the 2014 Lok Sabha elections: “acche din aane waale hain, hum Modi ji ko laane waale hain,” was one such example.
It was so good that one year later, people still remember it and given half an opportunity ask: “
kahan hain acche din?(where are the happy days?)” That’s the thing with communication which is dumbed down to a level of a school child—it works, but it also leads to people asking questions in the days to come.
On May 26, 2015, the Narendra Modi government will complete one year and it is time to ask that proverbial question: “have the good days come?” In this column I will try answering that question from the point of view of the
aam aadmi or the common man.
Inflation as measured by the consumer price index averaged a very high 10.2% between 2007 and 2013. In April 2014, before Narendra Modi was sworn in as the prime minister, the consumer price index inflation was at 8.59%. By April 2015, this number had fallen to 4.87%.
More often than not, the credit for this tends to go to the Reserve Bank of India. But what one needs to keep in mind is the fact that food products constitute nearly half of the consumer price index. And there is no way that the RBI can influence food prices.
Several steps taken by the Modi government helped on this front. One of the first decisions made by the government was to release 5 million tonnes of rice into the open market from the stocks maintained by the Food Corporation of India. News reports suggest that eventually only around 2 million tonnes was sold. But just the news that the government was selling was enough to contain inflation.
Active steps were taken by the government to contain rapidly rising onion prices as well. As Ashok Gulati, former Chairman of the Agricultural Costs and Prices,
wrote in a recent column in The Financial Express: “A slew of measures were announced by the government to contain the damage from surging food inflation. It not only restricted exports of onions but also imported onions and dumped them in major onion markets at prices below import cost. It also used the stick and raided many onion traders/hoarders.” And that clearly helped.
Over and above this, the minimum support price(MSP) of rice was raised by only Rs 50 per quintal or 3.8% to Rs 1360. The MSP is the price at which the government buys rice from the farmers, through the Food Corporation of India(FCI) and other state government agencies. This increase of 3.8% was much lower than the average increase of 9% per year in the MSP of rice since 2007-2008.
These measures helped to control food inflation. Food inflation hurts the poor the most. Half of the expenditure of an average Indian family is on food. In case of the poor it is 60% (NSSO 2011).
Further, Rahul Gandhi said in a farmer’s rally recently that the Congress government had raised the MSP of rice and wheat, the Modi government hadn’t. What Rahul and the Congress party need to understand is that everyone associated with agriculture does not own land. As per the draft national land reforms policy which was released in July 2013, nearly 31% of all households in India were supposed to be landless. The NSSO defines landlessness as a situation where the area of the land owned is less than 0.002 hectares. Any price rise, particularly a rise in food prices which is what an increase in MSP leads to, hurts this section of the population the most.
Hence, on the food inflation front, the Modi government has been able to deliver
acche din for the aam aadmi.
What are the other benefits that the aam aadmi has got over the last one year? In the two budgets that the finance minister Arun Jaitley has presented, the total deductions allowed under some of the most important sections of the Income Tax Act have been increased. The deduction under Section 80C has been increased from Rs 1 lakh to Rs 1.5 lakh. The deduction allowed on a home loan on a self-occupied property has been increased to Rs 2 lakh from Rs 1.5 lakh earlier. The deductions allowed for the payment of medical insurance premium has been increased from Rs 15,000 to Rs 25,000.
The Modi government has also been very aggressive on the financial inclusion front with the Jan Dhana Yojana. The government claims to have opened 15 crore bank accounts which allow account holders an overdraft of Rs 5000. This is a near saturation coverage. Nevertheless, 70% of these accounts remain dormant. What this tells us is that the communication around the Jan Dhana Yojana still remains weak.
While this is a good move at the individual level, the scheme clearly isn’t financially viable and the government hasn’t made it clear as to who will bear the cost of servicing all these accounts. As Diwakar Gupta, former Managing Director of the State Bank of India,
told Sreenivasan Jain of NDTV, no-frills banking “will never be profitable for banks. SBI has opened 3.6 crore accounts and the balance in them is Rs1,400 crore. So, it’s an average of Rs 400 per account. The bank on Rs 400 a year will make Rs 12. The cost of just putting it (the account ) on the core banking system, answering few questions, depositing, withdrawing, paying, reconciling all are significantly higher.”
Further, interest rates and EMIs have fallen a little over the last one year, but not significantly enough to get people to borrow and spendi at the same rate as they were in the past. Also, affordable housing in cities and town continues to remain a dream. The Economic Survey estimates that the shortage of urban homes stands at 1.88 crore units.
There has been no improvement on this front in the last one year. While, no one expects the government to solve the housing problem in one year, no concrete plan has been put forward either. Also, while the government keeps talking about a crackdown on black money that has left the shores of the country, but there is no talk about a crackdown on the massive amount of black money that lies within the country and a massive amount that continues to be generated.
A large part of this money gets invested into real estate, thus driving up prices.
A FICCI report on black money published in February 2015 points out: “The Real Estate sector in India constitutes for about 11 % of the GDP15 of Indian Economy, as these transactions involve high transaction value. In the year 2012-13, Real Estate sector has been considered as the highest parking space for black money.”
Only, once this nexus is broken down will affordable housing become the order of the day. Further, while corruption at the top-echelons of the government may have fallen, at lower-levels it is business as usual. Also, one of the main things promised in Modi’s campaign was the creation of jobs. Things are yet to move on that front.
Long story short—Narendra Modi has managed to deliver on some of the “
acche din” hype that it had managed to build in the run up to the 2014 Lok Sabha elections. It has fallen short on many fronts as well. But given the hype was so simplistic that was inevitable.

(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek)

The column originally appeared on Firstpost on May 21, 2015

Is Modi’s luck on oil running out?

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In mid April earlier this year, the finance minister Arun Jaitley spoke at the Peterson Institute, a Washington based think tank.
In his speech, Jaitley said that in late 2013, India was “teetering” and was “on the edge of a macro-economic crisis”. “Inflation was at double-digits, the current account deficit at 4 percent of GDP, growth was decelerating sharply, investor confidence was evaporating, capital was fleeing the country, the rupee was plunging; fiscal deficits were high; and India was reeking with the odour of corruption scandals and weak governance,” Jaitley went on to add.
After the Narendra Modi government came to power, most of these economic problems have been corrected, Jaitley said during the course of his speech. Jaitley further said that: “A budget…which reinivigorates growth by emphasizing public investment while maintaining fiscal discipline and protecting the vulnerable,” was passed.
What Jaitley, like a good politician, missed out on saying was that a lot of economic factors improved simply because the oil prices crashed. On May 26, 2014, when the Narendra Modi government took oath of office, the price of the Indian basket of crude oil was at $108.05 per barrel. It fell by around 60% to $43.36 per barrel by January 14, 2015.
This rapid fall in the price of oil helped set many economic factors right. India imports close to 80% of its oil requirements. As the oil price fell, oil imports came down in dollar terms bringing down the current account deficit. In technical terms, the current account deficit is the difference between total value of imports and the sum of the total value of its exports and net foreign remittances. Or to put it in simpler terms, it is the difference between outflow (through imports) and inflow (through imports and foreign remittances) of foreign exchange.
Further, oil is bought and sold in dollars. When Indian companies buy oil, they need to pay in dollars. This pushes up the demand for dollars and leads to the value of the rupee falling against the dollar. When oil prices rise, Indian companies need more dollars to buy oil. And this in turn puts a greater amount of pressure on the value of the rupee against the dollar. With oil prices falling dramatically, the total amount of dollars needed to buy oil also fell. This, to some extent, stabilized the value of the rupee against the dollar.
Falling oil prices even had an impact on the fiscal deficit. Fiscal deficit is the difference between what a government earns and what it spends. When the oil prices were rising the Congress led UPA government did not allow the oil marketing companies (Indian Oil, Bharat Petroleum and Hindustan Petroleum) which sell oil products, to sell them at a price at which it was financially viable for them to do so.
In the process they incurred under-recoveries. The government along with oil production companies like ONGC and Oil India Ltd, compensated the oil marketing companies for these under-recoveries. This led to the government expenditure going up and in the process the fiscal deficit also went up. A higher fiscal deficit leads to the government borrowing more, in the process pushing up interest rates, as the amount of money that others can borrow comes down.
Falling oil prices also had some impact on taming rampant double digit inflation.
In his Washington speech Jaitley took credit for all of the above economic factors improving because of the change in government. Nevertheless, falling oil prices had a huge role to play in the improvement on the economic front, Jaitley’s speech notwithstanding.
Oil prices have been rising in the recent past. On March 31, 2015, the last day of the financial year 2014-2015, the price of the Indian basket for crude oil was at $53.64 per barrel. On May 8, 2015 (the most recent data point available), the price of the Indian basket of crude oil was at $64.05 per barrel. Hence, the oil price has risen by close to 50% from mid January 2015 onwards.
What does not help is the fact that one dollar is now worth close to Rs 64. This means that the Indian companies buying oil will have to pay more. As long as they are able to pass this on to the end consumers of oil products like diesel and petrol, it does not really matter. But what if they are not?
In October 2014, the government had deregulated the price of diesel, allowing the oil companies to set the price of diesel depending on the prevailing international price of oil. Interestingly, the government used the fall in oil prices as an opportunity to shore up its revenues from oil by increasing the excise duty on petrol and diesel multiple times.
At close to $64 per barrel, the price of oil is still around 41% lower than where it was on May 26, 2014, when the Modi government took oath of office. Nevertheless, the price of petrol in Mumbai is at Rs 70.84 per litre, only 11.5% lower from the time when the Modi government came to power. The price of diesel is 12.8% lower.
The real test of deregulation will come if the price of oil keeps going up and the price of petrol and diesel cross the levels they were at when Narendra Modi came to power. In fact, the oil minister
Dharmendra Pradhan recently said: “The subsidy-sharing formula…can be extended…if the current market situation prevails.” He was referring to the compensation paid by the oil production companies like ONGC and OIL to the oil marketing companies. The compensation has come down because of the fall in the price of oil. The oil production companies still continue to compensate the oil marketing companies for the under-recoveries suffered on selling cooking gas etc.
But what Pradhan did not say is what happens if the current market situation does not prevail and the oil prices continue to go up? Will the compensation provided by the oil production companies go up? This would mean that the government would force the oil marketing companies to sell oil products like diesel and petrol at an unviable price.
It would also mean that the government would have to share the compensation provided to the oil marketing companies for their under-recoveries, with the oil production companies. It would lead to a higher fiscal deficit. Rising oil prices will also put pressure on the current account deficit as well as the value of the rupee against the dollar. Inflation will also go up to some extent depending on how much increase in the price of oil is allowed to be passed on to the end consumer. A higher inflation will mean that the Reserve Bank of India will not cut interest rates.
To conclude, the Modi government was very lucky with the price of oil falling by 60% between May 2014 and January 2015. That luck might now have started to run out, as it completes its first year in office.

(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek)

The column originally appeared on DailyO on May 11, 2015

Black money in our backyard

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Getting black money from abroad has been one of the pet issues of the Narendra Modi government. Black money is essentially money on which taxes have not been paid.
Estimates made by
Global Financial Integrity in a report titled Illicit Financial Flows from Developing Countries: 2003-2012, suggest that around $439.6 billion of black money left the Indian shores, between 2003 and 2012.
India is ranked number fourth (behind China, Russia and Mexico) when it comes to the total amount of black money leaving a developing country. The interesting thing nonetheless is that the quantum of money leaving India has increased dramatically during the Congress led UPA years.
In 2003, around $10.18 billion left the country. By 2012, this had jumped by more than 9 times to $94.8 billion. Interestingly, the number in 2009 was at $29 billion. This clearly tells us that the second term of the Congress led UPA which started in May 2009 was fairly corrupt.
Also, the amount of money leaving China grew by 3.9 times between 2003 and 2012. In case of Russia the increase was 3 times, whereas in case of Mexico the increase was 1.6 times. Hence, the jump in the Indian case was clearly the most.
The $439.6 billion that has left the country works out to around 23% of the Indian GDP of $1.88 trillion in 2013. Given this, it is a large amount of money and hence, the Modi government’s interest in getting this money back, seems justified.
While things may always be possible, what we need to look at is whether they are probable. And the answer in this case is no. Conventional wisdom has it that all this money is lying in Swiss banks. But that is an incorrect assumption to make.
There are around 70 tax havens all around the world. Given this, the money that has left Indian shores could be anywhere. Tax havens are unlikely to cooperate with the Indian government in helping it get back the black money stashed abroad.
The economies of many tax havens run on black money.
So does that mean the government should give up on its pursuit of black money? Of course not. It should concentrate on the black money that is stashed in India.
There are no clear estimates of the total amount of black money in India. As per a confidential report submitted to the government by
the National Institute of Public Finance and Policy (NIPFP) in December 2013, the black money economy could be three fourths the size of the Indian economy. This report was accessed by The Hindu in August 2014.
There are other estimates which are not so big. Nevertheless, what we know for sure is that only around 2.9% of Indians pay income tax. In fact, former finance minister P Chidambaram in his February 2013 budget speech had said that India had only 42,800 people with a taxable income of Rs 1 crore or more.
Now compare this with the fact that around 30,000 luxury cars are sold in India every year. Both Audi and Mercedes sold more than 10,000 cars in India in 2014. A February 2015 report brought by business lobby FICCI makes a similar point.
The report estimates that the number of dollar millionaires(i.e. with assets of Rs 6 crore or more) in India in 2014 stood at around 2.27 lakhs, up from 2.14 lakh in 2013. But the number of taxpayers with a taxable income of more than a crore is less than 50,000.
What this tells us clearly is that there is widespread tax evasion in the country. This tax evasion continues to generate a lot of black money, a major part of which continues to remain country. This is the black money that the government should be going after.
Information technology can play a huge part in this. In fact it already is. As the FICCI report cited earlier points out: “
The Integrated Taxpayer Data Management System is a data mining tool implemented by the I-T department that is used for detection of potential cases of tax evasion. The tool assists in generating a 360-degree profile of the high net-worth assesses.” The government should work towards making this tool even more robust by building in more data into it, in the days to come.
Further, it has to get cracking on the real estate sector where the maximum amount of black money is invested. This black money generates more black money. Going after the biggest property dealers of the National Capital Region, where most black money changes hands, might be a good starting point.
The question is will this government (or for that matter any government) go after domestic black money, given that it finances almost every political party in the country. Now that is something worth thinking about.

(Vivek Kaul is the author of the Easy Money trilogy. He can be reached at vivek.kaul@gmail.com)

The column originally appeared in the India Today magazine dated May 18, 2015

Five questions for Rahul Gandhi on his sudden love for distressed home buyers

RAHUL GANDHI SHASHI THAROORVivek Kaul

Rahul Gandhi is on a learning spree these days. Yesterday he learnt that Indian middle class also has a problem. A report in The Indian Express points out Rahul as saying: “Mujhe aaj kuch seekhne ko mila. Meri soch thi ki zameen ke mamle pe kisan ko, mazdoor ko, adivasiyon ko dabaya jaata hain. Magar aaj mujhe seekhne ko mila, zameen ke mamle pe middle class logon ko bhi dabaya jaata hai. (I learnt something today. So far, I used to think that only farmers, labourers and tribals are suppressed in land matters. But today I learnt that the middle class is also suppressed).”
The Gandhi family scion said this after meeting distressed home buyers in the National Capital Region. That he did not know that the issue of “land” also impacts the country’s middle class, after having been an MP for more than a decade, is a clear indicator of how well connected he has been with issues that concern the people of this country. But yes he is trying and it’s never too late.
Rahul also said: “They are told that you will get the flat on a particular day but for years they don’t get the flat. They are told the super duper area of the flat would be so much but what is delivered is different.”
There are multiple questions that crop up here. The situation that these home buyers are in currently, did not crop up over the last one year of the Narendra Modi government. It has been work in progress since 2008. So why has Rahul woken up to it now? The answer is fairly straightforward. This sudden concern for the middle class home buyer is a part of the Rahul relaunch.
The second question is how have all these builders managed to get away with taking money from the buyers and not delivering homes even many years later. Rahul met distressed home buyers from the National Capital Region. The Congress party was in power in Haryana (parts of which come under the National Capital Region) for an extended period of time. What did this government do for distressed home buyers in the city of Gurgaon, which is a part of the National Capital Region?
The third question is how have real estate builders in this country managed to have a free run for all these years. When almost every form of investment in this country is regulated, be it mutual funds, stocks, insurance, derivatives and so on, how has real estate managed to be given a free run for so long? The Congress party has been in power at the centre in every decade since independence. Why did it do nothing on this front all these years? Why was the Real Estate (Regulation and Development) Bill introduced only as late as 2013? This after the Congress led UPA government had been in power in Delhi for nine years. Maybe, Rahul can explain all this to the people of this country as well, the next time he decided to speak to the media.
The fourth question is that when opening something as simple as a savings bank account requires multiple documents, why can real estate be almost be bought over the counter, as long as the buyer is willing to pay in cash? How did the system evolve in the way it has? Guess, Rahul can speak to his seniors in the Congress party and maybe they can give him an answer.
The fifth question is what has Rahul’s Congress party done to control the amount of black money being generated in the country, in all the years that it has been in power. As per the Global Financial Integrity report titled
Illicit Financial Flows from Developing Countries: 2003-2012, around $439.6 billion of black money left the Indian shores, between 2003 and 2012. If this was the amount of black money that left the Indian shores, imagine the kind of black money that must have been generated during the period.
The Congress led UPA government was in power for much of this period. A substantial portion of the black money that is generated finds its way into real estate, driving up prices and making things very difficult for genuine home buyers who want to buy homes to live in them.
This has led to a situation where the real estate market has totally become investor driven. What did the Congress led UPA government do about this in the ten years that it has been in power?
To conclude, since Rahul Gandhi is in a learning phase, it’s time he saw Yash Chopra’s 1965 classic
Waqt. And in it he should concentrate on a dialogue written by Akhtar-Ul-Iman and spoken by Raj Kumar in the movie, which goes like this: “Chinoi Seth…jinke apne ghar sheeshe ke hon, wo dusron par pathar nahi feka karte(Chinoi Seth…those who live in glass houses don’t throw stones at others).”

(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek) 

The column originally appeared on DailyO on May 4, 2015

Rahul 2.0 needs some basic lessons in economics

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Rahul Gandhi recently came back to India from his foreign sojourn of nearly two months. And in his new avatar, Rahul is angry. One of the things he is angry about is the fact that the Narerndra Modi government after coming to power decided to go slow on increasing the minimum support price of wheat and rice. The MSP is the price at which the government buys rice and wheat from the farmers, through the Food Corporation of India(FCI) and other state government agencies.
Rahul told a farmers’ rally in New Delhi on Sunday: “We increased the MSP of wheat from Rs 540 to Rs 1400…The MSP has not changed, no benefit to farmers.”
Between 2005-2006 and 2013-2014, the MSP of wheat was increased at an average rate of 14% per year. The Congress led United Progressive Alliance(UPA) was in power throughout this period. In comparison, between 1999-2000 and 2005-2006, the price had gone up by 4% per year.
The decision to raise MSP did not have any method behind it. It was totally random. A report released by the Comptroller and Auditor General in May 2013 pointed out that “No specific norm was followed for fixing of the Minimum Support Price (MSP) over the cost of production. Resultantly, it was observed the margin of MSP fixed over the cost of production varied between 29 per cent and 66 per cent in case of wheat, and 14 per cent and 50 per cent in case of paddy during the period 2006-2007 to 2011-2012.”
Nevertheless, political decisions do not follow economic logic. But the question is did this decision to constantly keep increasing the MSP benefit the people of India at large. The answer is no. It was the major reason behind the high inflation in general and food inflation in particular, that was seen between 2008 and 2014. As economist Surjit Bhalla put it in 
a November 2013 column in The Indian Express “For each 10 per cent rise in previous years’ procurement prices, there is a predicted 3.3 per cent increase in the current year CPI…When the government raises the MSP, the prices of factors of production involved in the production of MSP products — land and labour — also go up.”
Food inflation hurts the poor the most. Half of the expenditure of an average Indian family is on food. In case of the poor it is 60% (NSSO 2011). What Rahul and the Congress party need to understand is that everyone associated with agriculture does not own land. As per the draft national land reforms policy which was released in July 2013, nearly 31% of all households in India were supposed to be landless. The NSSO defines landlessness as a situation where the area of the land owned is less than 0.002 hectares.
Any price rise, particularly a rise in food prices which is what an increase in MSP leads to, hurts this section of the population the most. Is Rahul not worried about them? They may not be farmers who own land, but they also farm land in this country.
Also, Rahul needs to realize that only a small section of the farmers have a marketable surplus, which they are able to sell to the government. This is primarily because the average holding size of land has come down over the decades. 
The State of the Indian Agricultural Report for 2012-2013 points out that: “As per Agriculture Census 2010-11, small and marginal holdings of less than 2 hectare account for 85 per cent of the total operational holdings and 44 per cent of the total operated area. The average size of holdings for all operational classes (small & marginal, medium and large) have declined over the years and for all classes put together it has come down to 1.16 hectare in 2010-11 from 2.82 hectare in 1970-71.”
This means that only a small section of the farmers make money only from agriculture. Only 17% of farmers survive on income totally from agriculture. The rest do other things as well to make money. And given this they are hurt by the food inflation because of a rapid increase in MSP.
The Congress led UPA government also increased the MSP of rice at a very rapid rate.  In 2005-2006, the MSP for common paddy(rice) was Rs 570 per quintal. By 2013-2014 this had shot up to Rs 1310 per quintal, an increase in price of around 11% per year. In comparison, between 1998-1999 and 2005-2006, the MSP of rice had increased at the rate of 3.8% per year.
This rapid increase in MSP led to a huge amount of food grains landing up with the government. The FCI did not have enough space to store all this grain. “Between 2005 and 2013, close to 1.94 lakh tonnes of food grain were wasted in India, as per FCI’s own admission in the Parliament,” a Crisil Research report points out. Rice formed 84% of the total damage.
While rice and wheat rotting in government godowns, there wasn’t enough of it going around in the open market.  The CAG report referred to earlier points out that in 2006-2007, 63.3 million tonnes of rice landed in the open market. By 2011-2012, this had fallen by a huge 23.6% to 48.3 million tonnes. The same is true about about wheat as well, though the drop is not as pronounced as it is in the case of rice. In 2006-2007, the total amount of wheat in the open market stood at 62.1 million tonnes. By 2011-2012, this had dropped to 61.4 million tonnes.
Also, with MSPs being increased every year at a rapid rate, “the cropping pattern,” the Crisil report points out, was also “biased towards food grains like rice and wheat,” and this led to their “excessive production”.
This is what the Congress led UPA’s policy of constantly increasing MSPs, actually did.
To conclude, as the old English saying goes, “the proof of the pudding is in eating it”. If the policy of the Congress led UPA government of increasing MSPs at a rapid rate was so good, why did the Congress party end up with only 44 seats in the 2014 Lok Sabha elections? Maybe Rahul Gandhi has an answer for that.

The column originally appeared on The Daily Reckoning on Apr 23, 2015

The new Janata Party will be a challenge for Modi in Bihar

Vivek Kaul

The year was 1977. The emergency had just ended. The opposition leaders who had been imprisoned during the course of the emergency had just released. They were holding a massive rally at the Ram Lila maidan.
It was a rainy day in Delhi and well past 9.30pm by the time Atal Bihari Vajpayee rose to speak. He was the star speaker for the evening and the people who had turned up at the rally had stayed back just to hear him.
To the shouts of “
Indira Gandhi murdabad, Atal Bihari zindabad,” Vajpayee started his speech with a couplet:
Baad muddat ke mile hain deewane,
Kehne sunne ko bahut hain afsane,
Khuli hawa mein zara saans to le lein,
kab tak rahegi aazadi kaun jaane.”

(It has been an age since we whom they call mad have had the courage to meet,
There are tales to tell and tales to hear,
But first let us breathe deeply of the free air,
For we know not how long our freedom will last). (Source: Tavleen Singh’s
Durbar)

In the time to come all the major opposition parties came together and formed the Janata Party. This was the only way they could take on Indira Gandhi by ensuring that their votes did not split. The party won 295 seats in the Lok Sabha elections that followed and thus came to power. The largest number of 93 MPs were of the Jana Sangha (now the Bhartiya Janata Party) origin. Forty four MPs came from the Congress (O) party. Seventy one MPs came from Charan Singh’s Bhartiya Lok Dal. Jagjivan Ram’s Congress for Democracy brought in 28 MPs.
A large number of the Lok Sabha seats that the party won was limited to North India, given that the southern part of the country hadn’t really felt the ill-effects of the emergency implemented by Indira Gandhi as much as the north India had. Given this, Indira Gandhi’s Congress still managed to win 154 seats though they were wiped out in Uttar Pradesh with both Indira and her son Sanjay losing elections.
If one leaves out the Jana Sangha from this, the other parties were what we would call socialists, in the Indian sense of the term.
Nearly four decades later some of these socialists who were a part of the Janata Party have decided to come together again. This time to take on Narendra Modi. The parties which are merging together are Mulayam Singh Yadav’s Samajwadi Party, Lalu Prasad Yadav’s Rashtriya Janata Dal, Nitish Kumar’s Janata Dal(United) Indian National Lok Dal of Om Prakash Chauthala, Janata Dal(Secular) of HD Deve Gowda and Kamal Morarka’s Samajwadi Janata Party.
Mulayam Singh Yadav has been announced as the head of the party in Parliament, though its name and symbol haven’t been decided as yet. The Times of India reports that the party is likely to be called Samajwadi Janata Dal with the cycle as its symbol (which is the current symbol of the Samajwadi party).
So how strong a challenge is this new party going to be to Narendra Modi? Will it be as strong as the Janata Party was to Indira Gandhi? The first thing we need to understand is that the party has been formed when the next Lok Sabha election is still four years away.
After the merger, the party will have 15 members in the Lok Sabha, which is minuscule to the 295 members that the Janata Party had. In the Rajya Sabha the party will have 30 members. In that sense, the party will provide very little challenge to Narendra Modi.
Further, the support of all the parties which are coming together is heavily localized. Samajwadi Party is strong in Uttar Pradesh. The Indian National Lok Dal is strong in Haryana and Dev Gowda’s Janata Dal(Secular) is strong in parts of Karanatka. Hence, to that extent no consolidation of votes can be expected against Narendra Modi.
The only exception to this is Bihar. In Bihar, both Lalu’s Rashtriya Janata Dal(RJD) and Nitish’s Janata Dal (United)(JD(U)) are on a strong wicket. Data from the election commission shows that the combine of Bhartiya Janata Party (BJP) and Ram Vilas Paswan’s Lok Janshakti Party(LJP) got 35.8% of the votes polled during the Lok Sabha elections last year.
The RJD and the Congress Party which fought the elections together got 20.1% and 8.4% of the votes respectively. The Janata Dal(United) which fought the elections separately got 15.8% of the votes. Hence, the vote percentage of JD(U) + RJD matches that of the BJP + LJP. Further, RJD+JD(U)+Congress got more votes than BJP + LJP. Nevertheless, since RJD+ Congress and JD(U) were not in alliance, these votes did not translate into Lok Sabha seats.
Things changed in the by-elections to 10 assembly seats that happened in August 2014. In these elections the JD(U) came together with the RJD+Congress and took on BJP+LJP. The data from the election commission shows that the RJD+Congress+JD(U) got 45.6% of the total votes polled. The BJP+LJP got 37.9% of the votes polled. Given that, this time JD(U) was not fighting the elections separately, the votes polled translated into assembly seats as well, unlike the Lok Sabha polls. The RJD+ Congress+ JD(U) got six out of the ten assembly seats.
Hence, in Bihar, given the way the caste combinations work, the new Janata Party can be a potent force to take on Modi. The trouble is that Lalu and Nitish, despite the claims that they make in public these days, do not get along with each other.
Nitish became the Chief Minister of Bihar in 2005, more than three decades after he entered politics in the early 1970s. And for the first half of his political career, he propped up Lalu Prasad Yadav even though he knew that Lalu wasn’t fit to govern. Journalist Sankarshan Thakur puts this question to Nitish in his book Single Man: “Why did you promote Laloo Yadav so actively in your early years?” he asked.
And surprisingly, Nitish gave an honest answer. As Thakur writes “’But where was there ever even the question of promoting Laloo Yadav?’ he mumbled…’We always knew what quality of man he was, utterly unfit to govern, totally lacking vision or focus.”
So why then did Nitish decide to support him? “There wasn’t any other choice at that time,’ Nitish countered…’We came from a certain kind of politics. Backward communities had to be given prime space and Laloo belonged to the most powerful section of Backwards, politically and numerically.”
And this logic still continues to remain valid. The next assembly elections in Bihar are scheduled for later this year is in November 2015. And the chief minister’s post will be a bone of contention between Lalu and Nitish. It remains to be seen whether the new party will be able to survive this.
In other states the new party may be able to cause some damage to Modi only if it comes together with the Congress. To conclude, the biggest challenge for the party will be to survive till the next Lok Sabha elections in 2019.

(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek)

The article originally appeared on Firstpost on April 16, 2015