India: The Next Five Years

India: The Next Five Years

Modi’s Re-election – Greater Potential for Continued Growth

India has voted decisively as Modi’s Bharatiya Janata Party (BJP) has once again emerged victorious, surpassing all expectations and beating its own previous tally with a larger-than-expected majority to sweep the board. Roughly 600 million people, or 67 percent of eligible voters, cast ballots via electronic voting machines in India’s six-week election, representing a stunning vote of confidence as no other Indian prime minister has returned to power in similar fashion in the past three decades.

The ruling party, under the National Democratic Alliance, is now present in 16 states compared with just 9 at the beginning of the previous tenure in 2014 and should cross the half-way mark even in the Upper house of parliament by November 2020. An important factor as better rhythm between states and central government is crucial in effective planning and execution of policies.

The election results are a vote for the continuity of economic policymaking and among many of the previous five years reforms, we believe that five were landmark achievements: The Goods and Service tax (GST), Insolvency and Bankruptcy code (IBC), Real Estate Regulation Act (RERA), accelerated use of Direct Benefit Transfer (DBT), and the formation of Monetary Policy Committee (MPC) by the Central bank for inflation targeting. We believe that together these five measures could help foster and accelerate inclusive growth – the key mantra as spelt out in the election manifesto.

All in all, Modi’s re-election is good news as it spells stability and a continuity of leadership and essential reforms. There are however several near-term challenges which include addressing a slowdown in the economy, reinvigorating the financial system, and maintaining macro stability by balancing growth and fiscal discipline.

Fig.1. Unprecedented Electoral Mandate
Fig. 2. Snapshot of Key Economic Indicators in Previous Term of the Government