Spain poilitical crisis – Lessons for India

For the past one month, Nifty 50 was on a roller coaster ride. For someone arduously following the market, the reason is evident – the political crisis in Europe. Uncertainty in the politics of Spain and Italy is creeping into the nerves of the investors across the world. A decade after the world witnessed Eurozone crisis, the present scenario in Europe exemplifies its inability to return to a normal situation. The present political scenario is a fallout of decade-long unsustainable growth across Europe.

Madrid just ousted their Prime Minister, Mariano Rajoy, who suppressed the Catalonian separatists with an iron-fist. The newly formed government also lifted the direct rule on Catalonia. The policy of new Prime Minister, Mr. Pedro Sanchez, towards the separatists, is awaited. However, he is unlikely to budge for their demands. The reasons for all the political drama lies in the heart of Europe’s fledgling economy. According to Eurostat, after Eurozone crisis, the northern states have substantially recovered compared to their southern parts. The unemployment and poverty are pulling the economy backward making them non-competitive with respect to Germany or France.

Mr. Rajoy was partly successful in sustaining the growth at 3% for the past three years. He was also successful in maintaining the fiscal prudence given the huge government debt. However, he could not control the simmering anger in his country due to illegal migration and widespread unemployment. The impending reason for his ouster was the proven corruption charges on his political party. Mr. Rajoy himself testified against few of his party members which indirectly led to his ouster.

The BJP government in India has a lot to learn from above political situation. Indian GDP growth stood at 7.7% this quarter, surpassing all expectations. So, does the Spanish growth of 3%. Even the fiscal prudence was perfectly maintained by Indian government just as in Spain. However, both Spanish and Indian government failed to understand the impact of their policies on people. Spanish government took more prudent measures to contain their fiscal deficit. Indian government implemented GST and demonetisation without providing some cooling off period.

Also, BJP flexed its muscle way more than what is required in trying to form the government in Karnataka. So did Spanish government in dismissing the Catalonian government. After the recent by-poll election, BJP should understand that not all is in their favour and people sentiments are fast changing. BJP legislators are also lackadaisical in propagating the benefits of GST and other policies they have been implementing. Their approach in pacifying the minorities has also caused widespread resentment among their major vote bank. It’s time the government respects and understand people sentiment and rework on their policies. Otherwise, they will face the fate of recently ousted Spanish government.

-Shankar

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