Swaminathan Aiyar | Maharashtra victory: as many puzzles as lessons from the elections in Maharashtra and Jharkhand which proved that the BJP is not limited to Narendra Modi: Swaminathan Aiyar

In Maharashtra, the BJP-led Mahayuti alliance is all set to form the government. I guess the markets would like that, right? It is continuity and stability.
Swaminathan Aiyar: Yes, definitely yes. It's not just that they won, they won with such a phenomenal sweep. I mean, it's like a slap in the face to the Congress party and the INDIA bloc. The INDIA bloc got something back by winning Jharkhand quite convincingly, contrary to opinion polls which suggested it might be a stalemate or something.

But in the end, in some ways, we are left with more puzzles than answers. Why did the NDA work so well in one place and so poorly in another? Why did the NDA perform so poorly in the general elections in Maharashtra and much better six months later? Yes, they had that subsidy for women, but cash gifts before an election have never swung elections, let alone swung them so spectacularly from a very severe general election beating ago six months to an absolute sweep in the state elections this time around?

But like I said, the markets will be happy. The markets will say: the markets are for the BJP, the markets are for continuity, both in Maharashtra and in India as a whole. I don't think the markets will believe that this result was achieved solely through populism. If they thought it was just because of populism, that might be a bad sign that budget problems lie ahead. They believe that Mr. Modi is not a great populist. He has to compete with other parties for gifts. So we cannot ignore this aspect. But this is not the party's philosophy per se. Rather, the philosophy is to increase the capacity of the private sector to grow through appropriate investment and policies, which will strengthen and grow and the market should therefore be satisfied.

Now that the election verdict is in, party MPs are campaigning for their own party leader to be prime minister. How do you feel about this?
Swaminathan Aiyar: I think Mr. Fadnavis would have a very good argument that after all I won many more seats than everyone else and even though Mr. Eknath Shinde became the Chief Minister earlier, because it t was the price the BJP had to pay for removing former chief minister Uddhav Thackeray, that is no longer the case.

In the current situation, what could happen? I mean, after the last state elections, because Uddhav Thackeray was not satisfied with Fadnavis's demand to become chief minister, he defected to the other camp to form a government. At the moment, Mr. Shinde cannot do the same. They don't have the numbers. They couldn't do it. So I would say that in the current circumstances, Mr. Fadnavis definitely has the upper hand. I imagine he will become chief minister.If we look at the recent election mandate, in Rajasthan, the BJP got a thumping majority, but in Lok Sabha, it did not perform well. Similarly, in Lok Sabha, the NDA or the BJP did not perform well, but they got a thumping majority in the national elections. National elections are normally held due to local factors, state growth, state GDP, rural distress and farmers' agitation. So even though the Maharashtrian agrarian economy and the rural economy have been put under stress, the fact that the NDA came back despite a loss in Lok Sabha, what does that tell you?
Swaminathan Aiyar: I started by saying that there were as many puzzles as there were lessons and in the end we say that we are more confused than wise. I would agree with this particular assessment, especially when you said the huge difference between Maharashtra and Jharkhand on the one hand and between the performance of Maharashtra parties six months ago in the general elections and now in the Maharashtra. It is very difficult to explain this by a rule of thumb.
Earlier, there was almost an iron rule that in every state, the BJP performed better in a particular state in the general elections than in the national elections because Mr. Modi was more popular than the party itself. This assertion is no longer tenable. We first saw this in Haryana, where the party performed better in the state elections than in the corresponding general elections. We have seen this repeated in Maharashtra. Now the point you made, local factors matter, yes agreed local factors matter, but until 2024, the BJP has always done better in general elections than in national elections. Thus, in the United States, local conditions were by no means dominant. It is true that local things matter, like caste equations and various other issues, all these matters matter, but not much. If you look at what happened in Maharashtra, you could argue that it is extremely important. On the other hand, if you look at Jharkhand, you can say: actually, it doesn't matter much. They did their best in Jharkhand. They argued that Muslim invaders were coming, infiltrators were coming, Muslims were going to marry our tribal women and they were going to take over the land. None of this worked. And yet, some argue that the Hindutva line was stronger this time around in the Maharashtra state elections and that helped.

In the end, there are as many puzzles as there are lessons. I wouldn't say there are any clear lessons that can be learned. But what we can say is that the BJP will be happy if it can perform very well in the national elections, even where it performed poorly in the general elections, where Mr. Modi counted. It would be extremely encouraging for the BJP to say that this party has much more to offer than Mr. Narendra Modi, which is positive.

What's next? Do you think the BJP will be convinced that whatever it has tried in terms of reviving the economy via infrastructure road, construction of roads, bridges, capital expenditure in railways is the right one? strategy and should he continue or would he realize that Investments are a good thing, but what essentially gets you votes is job creation? Should the BJP think tank stick to its original plan or return to freebies?
Swaminathan Aiyar: I think they will stick to the plan. They will stick to this plan because on the general election front, even though they had serious setbacks in Uttar Pradesh and Maharashtra, overall they won a third election and winning the three elections in a row is an achievement . I think continuity is what they had already decided. Nirmala SitharamanThe budget is largely a continuity budget. At the same time, had the BJP offered various gifts? The answer is yes. He was very keen on gifts even if he didn't say that it was the end of everything. After all, the Congress party thought it had given a big gift by saying that we would give away foodgrains at Rs 2-3 per kg. The BJP went further and said we would give it away for free. So what could be better than free food for every household that needs it?

So, yes, the BJP is in the race for freebies, but not to the point of disrupting the balanced budget or having to cut capital spending. I'm sure they will continue to say that we must have high investments. In this context, if the tax system is doing well, we will also grant gifts. They understand that it is part of politics, but for them, it is not central. The central element lies in heavy investments which, according to them, will ultimately result in the creation of additional jobs. Freebies won't get you more jobs. So, if the emphasis is on employment, investments are needed. I expect the BJP to continue on this path.

Even though markets have always found comfort in policy continuity and would be very happy with at least the Maharashtra election verdict, what would make FIIs come back to India as there has been quite a long hiatus in FII in Indian Equity Markets. Of course, the national election verdict would be a data point they would monitor, but apart from that, when do you think the FIIs are going to come back?
Swaminathan Aiyar: What FIIs do is not determined by what happens in India. Where India stands relative to others is primarily determined by what is happening in the world as a whole and within the world as a whole. Some say India is oversold. Perhaps in the short term, but our valuations remain very high compared to those of our various competitors. There is no doubt that China's valuations today are even more attractive than India's.

The counterargument is that India is doing well and its future prospects perhaps look better than China's, at least in the medium term. Thanks to this, money could come back. But I would just say that India faces the problem that when valuations are really high, beyond the point where people say wait, they will come down at some point. We will come back to this. Right now, there are opportunities elsewhere. So, as I said, the best way to make money is not to pay a first class price for a first class stock, but to pay a third class price for a second class stock .

I think they're looking for bargains in other places where the valuations are more attractive instead of saying India has the best prospects but India also has the highest valuations, okay, can -be a little money. But I would still say that there is a problem of very high valuations in India and, frankly, there are very good opportunities in other countries as well.