Country note: India
In Short
By Alexander Friis Illum, Senior Analyst at Global Evolution
Elections for India’s Lok Sabha (its lower house of Parliament) had commenced during our April visit to Delhi and Mumbai and results are due June 4. Incumbent Prime Minister Modi’s Bharatiya Janata Party (BJP) is highly expected to hold a majority of seats, and therefore policy continuity is likely for the next 5 years. We think that leads to projected economic growth rates of 6-7% and fiscal austerity. While we see similarities between India’s situation today and that of China in the early 1990s, we also note some challenges, mostly in terms of strict and counterproductive legislation on land, agriculture, and labor markets. That being said, India’s economy should be able to grow much faster than most of its emerging and developed market peers through the coming decade
Elections: By how much will Modi win?
In the last elections in 2019, Prime Minister Modi’s BJP won 303 out of 543 seats available in the lower house of the Indian Parliament, safely surpassing the 272 required for a majority. Modi’s popularity – especially in India’s Northern and Western states – is immense, and a third Modi term in office seems very likely.
The important question is: by what margin Modi will win this time? The target of the National Democratic Alliance (NDA), the collective of mostly conservative parties that the BJP leads, is 400 seats (from 345 currently). While that seems far-fetched according to political experts, if the NDA can win 359 seats (a 2/3 majority threshold), it will be viewed as a win for Modi. On the other hand, if the alliance loses seats, it will be a disappointment and structural reforms become unlikely.
Throughout Modi’s first term (2014-2019), the Indian parliament passed important structural reforms such as the GST (a comprehensive VAT-type tax reform) and demonetization (cancellation of larger bank notes to curtail the informal economy). However, throughout his second term, structural reforms were sparse, and the government opted for more project-based spending, such as public infrastructure investments. While India’s economic growth potential is solid with a young and relatively well-educated workforce, structural reforms on issues such as land acquisition, agricultural liberation and labor market rigidities are necessary over time.
Based on this, we were disappointed to learn that BJP’s election manifesto contains no plans for significant structural reforms. However, much probably depends on the election outcome. If NDA and Modi secure more than a 2/3 majority in the elections, they could seek some structural reforms. If not, a continuation of the less politically demanding public infrastructure investments seems the likely path.
