* Parties unveil populist measures
* Investors not surprised, but watchful
* Free water, subsidised gas dished out
By Rajesh Kumar Singh
NEW DELHI, Feb 3 India's political parties are
unveiling populist measures in a competition to win over voters
before a national election due in two months, even though the
domestic economy is struggling to recover from the worst
slowdown in a decade.
In the past two months, the Indian electorate has been
showered with goodies such as free water, cheaper electricity
and subsidised cooking gas. Some political leaders are also
promising free health care, minimum guaranteed farm wages and
even the abolition of income tax.
All these measures are being taken or promised at a time
when public finances are in dire straits and investors are
looking for a signal from politicians that they are ready to
take hard decisions to generate an economic rebound.
"Obviously, these things don't excite investors. But they
have all priced it in their investment decisions," said Rahul
Bajoria, regional economist with Barclays Capital in Singapore.
"If it becomes a national trend, it will be a concern."
No date has been set for the election but it must be held by
May. Investors are hoping it will result in a government strong
enough to take hard decisions to revive an economy that is
growing at about its slowest pace in a decade.
Rating agency Standard & Poor's has threatened to strip
India of its investment grade credit rating if the election
fails to provide a government capable of taking growth-friendly
The main opposition Bharatiya Janata Party (BJP) has a good
lead in opinion polls over the ruling Congress-led coalition,
which has governed for 10 years. Once the date is announced, the
government is barred from announcing new policies, hence the
GOOD ECONOMICS, BAD POLITICS
India's political class often views good economics as bad
politics. That view came into question after Congress' welfare
measures failed to find favour with voters in recent state
elections, earning a big cheer from investors.
But as recent developments suggest, political parties are
still wary of bold economic reforms.
That was why the new Aam Aadmi, or Common Man, Party (AAP)
government in the national capital wasted no time in acting upon
its promise of free water and cheaper electricity, drawing
demands by lawmakers in other states for similar reductions.
With the AAP's populist measures threatening to eat into
support for Congress among the poor, the ruling party joined the
bandwagon to protect its core voters by cutting electricity
tariffs by a fifth in the western state of Maharashtra.
Last week, it increased the subsidy on cooking gas, which
would cost the federal exchequer about $800 million. Under this
popular scheme, households are entitled to buy the gas at less
than half the market price.
On Monday, the government cut the prices of natural gas used
for transport and domestic purposes.
Spending on subsidies such as food, fuel and fertiliser,
which amounted to nearly 2.5 percent of India's gross domestic
product (GDP) last year, is not only the bane of government
finances, but also a major concern for investors.
While Congress is known for its penchant for populist
welfare schemes, the BJP has also failed to enhance its image as
a reform-oriented party.
BJP's prime ministerial candidate Narendra Modi is leading
in opinion polls and is widely expected to replicate his success
in pushing tough reforms in the western state of Gujarat.
But in a setback to investor confidence, his party's
government in the northern state of Rajasthan has barred foreign
direct investment in supermarkets, overturning the policy of the
previous, Congress-led administration.
In a bid to win over crucial middle-class and urban voters,
some BJP leaders are also promising to scrap income tax, which
is the government's most reliable revenue stream.
The party is also considering expanding India's welfare
programmes by promising a "right to health".
"In the lead-up to elections, you are likely to see such
things," said Sanjay Sinha, a veteran fund manager who founded
Citrus Advisors, an investment advisory firm. "This apprehension
has made markets a little weak in the lead-up to elections."
(Editing by Angus MacSwan and Gareth Jones)