Most market observers aren’t particularly worried about the results of the Delhi assembly elections, even though the exit polls predict a victory for the Aam Aadmi Party (AAP), a party heartily disliked by the stock markets. Sure, an AAP win could provide a fresh excuse to book some profits because a slew of companies have missed their earnings estimates for the December quarter and the market is nervous about the fresh supply of paper on account of the government’s divestment programme. But these concerns are likely to be pushed to the background as the Union budget approaches.

Bank of America-Merrill Lynch, for example, has brought out a report that says the market could see a tactical correction of around 5% over the next two months or so. It doesn’t think an AAP victory will make any difference to the Narendra Modi government’s reforms programme.

But the question is not really whether a loss in the Delhi elections brings down the Sensex by a few hundred points. Nor does it matter whether it will dent Modi’s image. What is far more important is the class divide that everybody is talking about in the Delhi election. If the poor of Delhi do vote overwhelmingly for the AAP, that would mean they aren’t buying the Bharatiya Janata Party’s (BJP’s) much-talked-about development plank. It could mean their idea of development is rather different from that of the so-called middle classes. Sure, development means jobs, but jobs are not enough. It also means the ability to afford power and water, the money to afford good housing and healthcare and education. The needs and priorities of the poor aren’t the same as those of the upper classes.

So the important questions if AAP wins are: will the class divide become wider? Will it be exacerbated into class conflict? And can this struggle spill over to the rest of the country? There is, of course, no dearth of opportunities for it to happen. India is, as we all know very well, a land of grievous inequality, not only of income and assets but also of opportunity, health and education.

While development gives rise to new opportunities, it is also hugely disruptive. It breeds new winners and new losers. Battles are already being fought over land, water, mining rights, fishing rights, forests and ways of life. Migration from other states has led to antagonism and fights with the locals. It has led to hundreds of thousands of men living in cities separated from their families and their homes. It has led to the proliferation of slums. True, the fruits of development will ultimately benefit all, but the journey is far from smooth.

Arvind Kejriwal’s rhetoric is not just pro-poor, it has also been distinctly against big business. He has made a virtue of not hobnobbing with business leaders, part of his image of being a man of the masses. More significantly, he has held out the hope that the poor may benefit from some measure of participatory democracy, instead of being at the receiving end of harassment by the police or government babus.

On the other hand, the BJP government at the centre is decidedly big-business-friendly. The land acquisition ordinance practically provides carte blanche for the state to take over land on behalf of private capital. The new government is even trying to breathe new life into the discredited special economic zones. It is, albeit rather timidly, trying to change the labour laws. It is trying its best to reduce subsidies. And although it has denied it, there have been reports it is trying to scale back the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) programme. Rural wage growth has been contained.

There is little doubt that, from the point of view of capital accumulation needed for development, most of these changes are sorely needed. But in a democracy, fig leaves, too, are sometimes necessary to camouflage the accumulation, particularly when it becomes outright expropriation. The usual method has been to pay lip-service to social welfare, while making sure that elite interests are taken care of. This was ensured by cheap land, cheap raw materials and other resources, easy access to finance and low taxes on the one hand and subsidies on the other. Another fig leaf was to have lots of laws but not implement them. But with the masses becoming increasingly restive, more and more sops had to be given, till the situation became unbearable during the UPA-II’s rule and the process of accumulation was in danger of coming to a shuddering halt.

The Modi government has, so far, said and done all the right things as far as economic policy goes. Some of us may want a faster pace of reforms but, at least, they are in the right direction. But an AAP victory will increase the fears of a backlash. To be sure, it is early days yet. Much will depend on whether the other opposition parties, now in disarray, are able to seize the opportunity in the states. The BJP’s reaction, especially whether it goes in for the strident Hindutva option, will also matter. Much will also depend on how soon growth can be re-ignited, simply because growth can paper over a lot of cracks. But an AAP win, if it leads to a similar class schism elsewhere in the country, has the potential to stall the reform process. True, it’s a small risk so far, but it bears watching.

Manas Chakravarty looks at trends and issues in the financial markets. Your comments and

feedback are welcome at capitalaccount@livemint.com

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