After the Bihar election results, questions are being raised over the pace of reforms in India. Bloomberg TV India caught up with Madhusudan Kela, Chief Investment Strategist at Reliance Capital, to get an insight on the economy and markets.

What will the defeat in Bihar mean for Prime Minister Narendra Modi’s outlook and efforts as far as the economy is concerned?

I would say the government’s focus on a larger development agenda should come back now that we are through with the elections.

And if the press conference which was held (by Power Minister Piyush Goyal on discom reforms) on Friday was any indication, I think possibly they knew what was coming. And the content of the discom reforms were extremely encouraging and this is something which has been pending for long.

So I would still argue, I do not think that this government is likely to resort to any populism in that sense. But I think they will be back on the reform agenda, pushing things that are stuck. There may be a larger political alignment, which is pending.

Maybe the government would like to reach out to other political parties which are neutralist, and get things like GST Bill passed in the next session.

My take would be that, yes, Bihar is a big loss for the government — that is what elections are all about. But I would not say that this one election will change the course of India, or the course of this government.

How hopeful are you of the big ticket legislative agenda moving forward?

To my mind, and for the markets as much as I understand, the only big agenda is the GST Bill. I never considered the Land Acquisition Bill a big deal at all. I think it is ultimately a State subject and whenever the money comes States will deal with it. We saw how Andhra Pradesh acquired over 30,000 acres of land to build the new capital — lot of it was required to be bought from farmers.

So, I think GST is the real agenda. Let us not forget there has been a debate for over a decade on GST and hopefully we are coming to an end of that debate. This is what I am hopeful for, that the government would like to reach out to other like-minded political parties to ensure that the GST Bill passes. So that is what I would be really watching for in the winter session — is there any strategic political change from this government to reach out to other political parties and ensure that something like the GST Bill passes.

How do you assess the government’s Ujwal Discom Assurance Yojana (UDAY) announced a couple of days back?

It is extremely heartening — not many people are in mood to hear positives — but I would argue for this government’s sake that this is the single biggest reform. If they can execute even 80-85 per cent of whatever they have said, I think this is a big reform.

If you look at any problem — whether it is bank, power or coal off take — lot of these problems were stuck because the discoms were not in a great shape. By 2019, they want to make sure that all the discom losses should get wiped out. There is a huge incentive for performing States and huge disincentive for those who are not performing. I think this is something which has not come overnight, as a lot of debate has already happened on something like this. So what I would like to see is the execution. And if they are able to execute then I think this is an extremely important step from the government in the last 15-18 months.

On the overall outlook for the banking sector, there has not been significant improvement, as indicated in the Q2 earnings. When do you expect the situation to improve?

The problem with the PSU banks was not only because of discoms. The real challenging situation on the ground is even with large (corporate) groups. However, in the financial sector there are lots of opportunities in private banks and NBFCs. The government may have to find some bold move. I am hoping, what happened with discoms, something of that nature will have to be done with PSU banks.

Maybe some of the weaker banks may have to be merged with stronger banks. Are these things on top of the government agenda and will they be addressed before things get blown out of proportion? These are the things the market will be watching.

Related Topics