Rajendra Lotliker, a rice farmer in Goa, is keen for the main opposition party to emerge victorious in India’s general elections that begin in a couple of weeks.
“Congress has done nothing,” he says, speaking about the ruling party. “Only now their eyes are opening but it’s too late.” He explains that he thinks the opposition, the Bharatiya Janata Party (BJP), will do more to help farmers in the country.
The 46-year-old, who has two acres of farm land, earns 15,000 rupees (Dh900) a month. Mr Lotliker is well aware that the outcome of the elections will have implications for his business, as well as being critical in determining the course of the country’s entire economy
Analysts and industry agree that it is vital for India’s economy that a strong, politically stable government is formed after the polls, which could mark a turning point for the country’s faltering growth. A fragmented, weak coalition is considered to be the worst possible result for the Indian economy.
The elections begin on April 7, with results due to be announced on May 16. Many corporates and investors have put major decisions on hold until the elections are over because of the significance of the event for the future of India’s economy.
“The outcome of the elections will be critical for all the industries and the Indian economy as a whole as the outcome will decide the market and investment sentiment,” says Suman Reddy, the vice president and managing director of Pegasystems Worldwide India, an IT firm. “A strong and stable government with better policymaking abilities is the need of the hour.”
The Congress-led United Progressive Alliance (UPA) has been plagued with allegations of corruption and accused of dithering over critical reforms needed to help boost the country’s economy and blamed for stalled infrastructure projects. India’s economic growth slowed to a decade-low of 4.5 per cent in the last financial year, which ran until the end of March. The country has been struggling with high inflation levels, a depressed currency, and wide deficits. The consensus is that India needs annual growth levels of about 8 per cent to create much-needed jobs for its population of 1.2 billion, more than half of which is under the age of 25.
The Hindu nationalist BJP, is widely perceived as more business-friendly than Congress. Opinion polls indicate that there is a high chance of a BJP-led National Democratic Alliance (NDA) government emerging after the elections.
Narendra Modi, the BJP’s candidate for prime minister and the chief minister of Gujarat, has been widely credited with having driven in the state’s double-digit economic growth of the past decade. Many believe that Mr Modi could play a similar role in improving the business climate of the country if he were he to come to power. He remains controversial for some voters, however, because of allegations that he failed to stop religious riots in Gujarat in 2002 that led to the deaths of more than a 1,000 people, the majority of whom were Muslims.
“The current sentiment with regards to the political and economic scenario has never been weaker and a change in power would be a welcome change to markets and immediately boosting investor sentiment – both domestically and internationally,” says Gaurav Kashyap, the head of futures at Alpari ME, a global online currency and commodities broker.
“A change to the status quo will garner a similar reaction in the Indian rupee. A BJP majority would no doubt be the best for risk moods, as a weakened coalition would maintain uncertainty and a Congress victory would maintain the status quo which is plagued with structural, economical and corruption issues. Markets remain bullish on Narendra Modi based on his track record in Gujarat – his business acumen has seen the state post double-digit growth figures and outperform the rest of the country, on the back of his shrewd economic reforms and his ease in inducing foreign direct investment – and this is a promising prospect for the Indian economy which is weighed down by sluggish growth, a ballooning deficit and higher price pressure.”
Indian stocks have already hit record highs in the run-up to the elections and analysts forecast that the rupee would strengthen dramatically with a BJP-led government.
From its current levels of about 61 against the US dollar, Mr Kashyap says that a BJP majority would trigger a rebound in the Indian currency, sending it to levels between 50.50 to 54 this year. “A weakened coalition or, alternatively, a Congress win would see the Indian rupee test 58 levels before weakening in the medium term and consolidating above 62 levels,” he says.
Analysts are also upbeat on Indian stocks as the elections near.
“Only the equity market’s worst case scenario of a non-Congress non-BJP ‘Third Front’ government can, we think, upset the Indian equities applecart,” says Manishi Raychaudhuri, the Asia Pacific strategist at BNP Paribas.
“Investors and corporates alike seem focused on the general election outcome as a key variable in their decision-making. However, some administrative steps to boost investments are likely to be adopted by any stable government; and several macroeconomic parameters [twin deficits, inflation and liquidity] seem to be in the early stages of recovery. “
But experts highlight that there is be much to be done by the next government.
“Whether a potential BJP-led dispensation can change the course of the prevailing policies will depend on the nature of political coalition and its political will and the BJP’s policy framework,” says Dhananjay Sinha, the head of institutional research at Emkay Global Financial Services.
“The BJP’s stance is not dissimilar to that of the UPA on issues such as food security, farm sector, housing, farm loan waiver, infrastructure sector, easy credit, tax reduction and land acquisition.
“Specific measures to tackle are persistent food inflation, fiscal deficit, declining productivity, bank recapitalisation, manufacturing sector, domestic coal supply, and employment.
“These issues require serious attention, including political will, not just improvement in sentiment and governance. The fiscal mess that the next government will inherit is compounded by the last-minute dole-outs of the UPA.”
Mr Reddy at Pegasystems says that he hopes that the next government will signal a change for the better in India’s economic landscape.
“The IT industry is hopeful of better governance and administration from the central government in the next five years,” he says. “Policies for national progress should not get sidelined due to political issues. For the IT industry, the support required from the government is in terms of clarity on transfer pricing, providing tax rebates, formulating investor friendly policies. Economic growth will depend on curbing the fiscal deficit further and reducing inflation at a macro level.”
He adds: “The next government should aim at strengthening the economy by addressing these issues.”
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