Modi’s re-election is good news for investors

The leader aspires to make India the world’s third largest economy by 2030.

Modi’s Bharatiya Janata Party (BJP) has once again emerged victorious in India’s 2019 national elections. This better-than-expected outcome will be taken as proof that Modi’s popularity continues to work. Markets have reacted favourably; Indian stock markets are off to a roaring start.

In the lead up to the polls, the probability of BJP repeating its 2014 single party majority feat had been considered low, given the economic performance under Prime Minister Modi’s leadership. Over the last 5 years, BJP has delivered on some of the 50 key promises/reforms. There are still a number outstanding; key among these being the insufficient creation of jobs, weak manufacturing, shortfall in investments and low farm incomes. Equally, the party’s execution record is seen to be weak given the implementation issues around the demonetisation and Goods and Services Tax (GST) schemes.

Having said that, there have been several landmark achievements that have been under appreciated.  Rural electrification , Direct benefit transfers for subsidies , construction of toilets across villages for improving sanitation and hygiene,  LPG cooking gas (almost for all) and increasing the road network pan india have been very well received by the rural poor. Last but not the least, reigning in inflation for food and protein has been the biggest scoring point.

In the end, the electorate obviously cheered the response to the nagging internal security issues sponsored by Pakistan with a military response, , as well as Modi’s popularity - especially among first-time voters ~ 15 million new voters in the 18-19-year age bracket, have helped them got them to a single party majority at the centre.  

Modi’s re-election is good news for investors as it spells stability and a continuity of leadership and crucial reforms along with it are several immediate challenges like banking and NBFC crisis and longer term socio-economic challenges.

What’s in store?

BJP’s 2019 election manifesto suggests the next 5 years will be dedicated to fulfilling and furthering its 2014 promises. This term suggests that the electorate is convinced that the government should be given another term to complete the agenda that they set out earlier.

On the socio-economic front, it aims to further improve India’s rank in ‘Ease of Doing Business’ category, simplify the GST process, double the country’s total exports, double farmers’ income by 2022, improve women’s welfare and provide proper housing for families living in mud sheds. Others include promotion of cultural heritage, a zero-tolerance approach to terrorism and enhanced national security. All are clearly high on the national agenda and election manifesto.

The party also aspires to make India the world’s third largest economy by 2030. Overall, the economy appears to be in a much better position than in 2014. Although growth has not ticked up significantly, it has averaged above 7% over the last 10 years. Structural reforms have been initiated in the last term and the next five years would be the run way to complete them. They will have to grapple with global crosswinds and internal economic challenges, but reviving the economy with Capital formation would be high on their priority.

Krishna Kumar is portfolio manager at Eastspring Investments.

Subscribe to Money Observer Magazine

Be the first to receive expert investment news and analysis of shares, funds, regions and strategies we expect to deliver top returns, plus free access to the digital issues on your desktop or via the Money Observer App.

Subscribe now

Add new comment