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17 March 2017 Editorial


17 MARCH 2017

Going forward in Goa

Fractured mandates and post-poll coalitions are not new to Goa, which has had a history of political instability. This time round, after the counting of votes on March 11, the process became even more complex with the issue of government-formation being taken to court. With only 13 legislators in the 40-member Assembly, it was clearly going to be difficult for the BJP to stake a claim to power, but the single largest party, the Congress, was short of a majority too, winning 17 seats. Moreover, the Congress failed to get its own legislature party in order after the elections and was unable to make haste in choosing a leader and finding allies. Support was guaranteed to the BJP by the Maharashtrawadi Gomantak Party, which had been an ally in the outgoing government. With the Goa Forward Party and two independents also hitching their bandwagon to the BJP, it was evident that the party had the upper hand. In the absence of a pre-poll alliance, it is arguable that the Governor should have invited the leader of the single largest party to try to form the government. But there was no likelihood of the Congress being able to command a majority in the House without the endorsement of the MGP or the GFP and independents, something that, notwithstanding its protestations, the party fully well realised. The Supreme Court's decision to not stay Governor Mridula Sinha's invitation to the BJP to form the government may have, at least partially, blunted the criticism that she acted in a partisan manner. With the BJP winning the vote of confidence in the Assembly, a certain post hoc legitimacy has been established, but there is no escaping the fact that this happened in the shadow of a controversy.

While the party will be relieved to have returned to power, the BJP's reduced tally in the Assembly elections is a reflection of a degree of dissatisfaction with its performance. Past State governments in Goa have had a reputation for rent-seeking and paying little regard to violations of environmental norms, especially by the construction, tourism and mining industries. The BJP, after coming to power in 2012, had promised to take steps to eradicate corruption and graft at various levels of the State's administration, but its efforts were found to be lacking. Goa's voters have this time clearly been looking for political alternatives, which is reflected in the success of smaller parties such as the GFP. That the senior BJP leader and Union Defence Minister, Manohar Parrikar, had to be roped in to take over as Chief Minister indicates that the party is aware of the challenges it faces in running a fresh government in Goa. Mr. Parrikar now has a chance to deliver on the pledge he made during his previous tenure, of delivering a better administration.

Return to normal

The U.S. Federal Reserve has resumed normal monetary service by raising interest rates for the second time in three months. The Fed's decision on 15 March 2017 reflects its confidence in the continuing expansion and signals that its efforts to relate the world's largest economy are largely on track - with overall inflation seen to be stabilising around its longer run target of 2% over the next couple of years. Significantly, Chair Janet Yellen stressed that policymakers expect the strengthening economy would warrant "gradual increases" in the benchmark federal funds rate to ensure that the monetary policy stance remains accommodative of growth, even as price stability is ensured. This emphasis on ‘gradual' provides a degree of policy predictability that markets, for now, can broadly factor in two more rate increases of one quarter of a percentage point each for the rest of 2017 - especially when coupled with a median projection for the signalling rate to reach 1.4% at the end of the year, from the current 0.75%-1.0% range. The statement has allayed fears of an accelerated rate normalisation, that could have triggered a sharp jump in outflows from emerging markets such as India. Investors worldwide are bound to feel more reassured that one of the world's key economic engines is in good shape and that should bode well for global demand. India's exporters, including of software services, are also likely to see a silver lining in the Fed chief's reference to a distinct firming in business investment, after having been soft in 2016, that has helped put business sentiment at "favourable levels".

Ms. Yellen also lagged caveats to the Fed's projections. Averring that policy is "not on a pre-set course", she pointed to the potential impact that changes in fiscal policy, among other factors, could have on the economic outlook. While acknowledging that it is still too early to anticipate exactly how the Trump administration's fiscal policies may unfold, the central bank is intimating that it will be closely monitoring the new dispensation's broad budget plans and remains ready to change policy tack if it were to perceive any risks to its price stability goals. There is also the matter of when the Fed may decide to initiate the process of normalising its balance sheet. Given that the central bank's holdings of Treasury bonds and mortgage-backed securities reached record levels in the aftermath of the 2008 financial crisis, any plan to begin unwinding these holdings will need to be very carefully calibrated and communicated in advance to ensure that global markets don't witness a repeat of the ‘taper tantrum' of 2013. Ms. Yellen stressed just that when she said the Fed "as a matter of prudent planning" had discussed issues related to an eventual change to its reinvestment policy and, while no decisions were taken, would ensure that the process be "gradual and predictable".


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