On Valentine’s Day, Delhi has officially rekindled its affair with that old flame Arvind Kejriwal. India’s stock markets are spooked, seeing it as a thumbs-down for Narendra Modi’s market-friendly reforms. The Sensex lost over 1,000 points since January 28, before recovering slightly. But if you are a serious long-term investor in India or even a free-market fundamentalist, there is great reason to cheer the Aam Aadmi Party’s dramatic win.

The ‘Modi for PM, Kejriwal for CM’ verdict is not a split personality disorder that should jeopardise India’s reforms. In fact, Delhi has voted for competition in the free market of politics. Delhi has made space for another seller to display his governance model, neutralising the potential inefficiencies of a Modi monopoly. Now there will be more pressure on Modi to deliver. There will be pressure to rein in the Sangh Parivar, shed the vanity suits and get down to the job of improving the life of Indians.

What’s striking is that most people — from the cab driver to the newspaper columnist who quotes the cab driver — have bought into the idea of policy competition over loyalty to any party or leader. This can only be a healthy sign for the expansion of market philosophy in India.

Evolution of the political market

From independence to 1991, a socialist India voted on ideology and in gratitude. The Congress and the Gandhi family reaped the rewards, creating a monopoly of sorts, which was only briefly broken in the mid-’70s. Only from the mid-’90s onwards did Indians begin to understand the benefits of competition in all markets. Just like we suddenly began consuming hundreds of cable channels and scores of cola options, we began consuming different brands of politics, built mostly around identities like caste and religion.

This sudden crowd of political brands resulted in an era of coalition governments, which also injected competition, but at times became obstructive. In 2015, India’s political market has evolved from identity and ideology to governance issues like corruption and the economy. There is also a pushback against unwieldy coalition governments.

Both Modi and Kejriwal saw this new political opportunity and capitalised on the Congress’ decay to capture large swathes of the political market. They used the media effectively to take their product to the people. The wily Delhi voter realised that both Modi and Kejriwal can satisfy their different needs, national and local. Like any smart investor, the Delhi voter did not become a sellout for Modi, but hedged his/her bets with a “low-risk, localised investment in an opposition,” as sociologist Dipankar Gupta says.

Competing models

Arvind Kejriwal now has five years to prove the effectiveness of his governance model in Delhi. If he succeeds, and if Modi does not deliver robust economic growth by 2019, then there is a possibility that the anti-Modi vote may consolidate around Kejriwal, nationally. So at this stage, investors should not worry about Kejriwal spoiling their India party, but they should ask if he has a grand economic vision and how different is it from Modi’s.

The Aam Aadmi Party’s manifesto claims its ideology is “neither Left nor Right and will support every good idea, old or new, if it is in the interest of India”. By virtue of not calling itself Left or even socialist, the AAP actually positions itself to the right of the Congress and the Mandal parties.

But compared to Modi’s famous “business-friendliness”, AAP does have an image problem with industry. There are several reasons, led by Kejriwal’s crusade against Mukesh Ambani and what he alleges are corrupt power companies in Delhi. His love for subsidies and the socialist background of some of his comrades might put off investors.

But look at the flip side: AAP’s manifesto also talks about ridding “the high cost of compliance, licence-raj, lack of transparency” and creating a stable, simple tax regime. All this can go down well with industry. Also consider Kejriwal’s crude but politically significant reference to being a bania who understands business — a traditional socialist would never use that line. Delhi’s small traders seem to have thrown in their lot with the AAP, if you look at how the latter swept up seats like Karol Bagh and Chandni Chowk.

In terms of a grand vision for economic growth, AAP has one basic difference with the BJP: AAP’s model is bottom-up capitalism, that relies heavily on “unleashing India’s entrepreneurial energy” by helping small and “honest businesses”; whereas Modi’s model is more top-down, reliant on large investments and mega-projects that create jobs.

Serious financial players in India should be delighted that we now have four years of two different models competing with each other to prove which one works better. Both leaders have been given full mandates by the electorate, so they are unfettered from coalitions. In 2019, India may have the chance to choose directly between the two. This is the kind of competitive bidding among sellers in the political market that Adam Smith would have approved of.

( Sambuddha Mitra Mustafiis the founder of The Political Indian )

Follow Sambuddha on Twitter @some_buddha

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