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Election Outcomes & BJP’s Victory Impact On Indian Economy

05 August 20226 mins read by Angel One
Election Outcomes & BJP’s Victory Impact On Indian Economy
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The state elections are gone. While the BJP has clearly swept Uttar Pradesh and Uttarakhand, it was the Congress that made hay in Punjab. The final shape of the government in Manipur and Goa will take some time, but the Congress has at least managed to redeem itself in both these places. But one thing is absolutely certain! This election outcome has established the ruling BJP as the truly dominant party in the entire Hindi Belt with larger implications for the national polity. Not just politics, the election outcome could also have larger implications for the Indian economy and the Indian markets. Here are five such shifts that we could see in the coming months.

 

  • The ruling NDA now gets greater heft in the Rajya Sabha…

 

To be fair, even after the decisive victory for the BJP in UP, they will not have a majority in the Rajya Sabha. But by the time the next round of Rajya Sabha elections happen in 2018, the BJP will look to add at least 15-16 members to their tally in the Upper House. That will add a lot of heft to the ruling NDA combine in its dealings in the Upper House. During the discussions over the GST Bill as well as the Land Acquisition Bill, we consistently saw how the Congress and the other opposition parties managed to stonewall the efforts for over a year. That was because the NDA was well short of a majority in the Rajya Sabha. The decisive victory in the state of UP will make the opposition much more cautious about its stonewalling tactics as the ruling NDA will be much closer to the half-way mark by 2018. From a reforms perspective, what this means is that the NDA may actually find it less cumbersome to get key reform bills through in both the houses.

 

  • Now, expect a sharper attack on black money…

 

There was the big question mark over the public reaction to demonetization. If India’s most populous state of UP can be safely taken as a microcosm of India, then the people of India seem to have literally welcomed the demonetization drive with open arms. The reasons are not far to seek! The entire drive was projected as a temporary pain to flush out the black money from the system. The UP outcome will give the NDA government much greater confidence when it comes to coming down heavily on black money. From an economic standpoint we may look at two simultaneous scenarios. On the one hand there will be amnesty schemes to give an exit route to people with black money, albeit at a cost. At the same time, there will be the use of technology tracking and stringent penalties to dissuade people from evading taxes. What the people of India appear to be convinced is that the parallel economy is the real bane that has made the rich, much richer. A thrust on black money will be healthy for the economy overall even as it will improve compliance through a greater focus on technology and digitization.

 

  • The outcome may set the stage for bolder reforms…

 

To be fair, the government has not exactly shied away from undertaking bold reforms. The GST Bill is a classic example. Similarly the Black Money Bill was also a great step forward. While the Black Money Bill is already operational, the GST Bill will be implemented effective from July 01st 2017. But then there are other reforms that are yet to be taken up in a big way. The land reforms are still some time away. We have been talking about an exit policy that has also not made any progress. India needs to drastically liberalize its labour laws if the environment for business has to be really made easier. Then, of course, there is the all important legislation to permit FDI in many sectors that are considered to be too politically sensitive right now. Finally, there is the big unfinished agenda of encouraging foreign competition in many sectors where it is currently not permitted. Retail is one segment that is still too closed and not opened up to foreign competition. All these reforms need to be pushed through and we could see substantial visibility on these reforms in the coming months.

 

  • Foreign investors will be a delighted lot…

 

For many foreign investors, the big worry was whether the Modi Magic of 2014 was still intact or it had started waning. If anything, the UP elections have proved that not only was the magic intact, but it had acquired a much more popular stature. That will be good news for the FDI and the FPI investors. Many FDI investors had been impressed by the “Make in India” campaign but they were unsure of its sustainability. With the state of UP voting decisively for reforms and development, the FDI investors will have something positive to look forward to. For the FII investors, the real challenge is having a regulatory and investment climate that is stable and predictable. The victory in UP will reassure them that the government will not resort to any degree of populism despite the central elections coming up in 2019. After all, clarity on regulations, transparency in execution and sustainability of reforms is what FDI and FII investors want. There is reason to hope that the global investors will get all the three.

 

  • Digitization could become the big theme for the Indian economy…

 

The trend towards digitization actually began with the demonetization drive. The victory in UP will ensure two things. Firstly, it will ensure that the government drive against use of cash will continue relentlessly. This will be a great boost for digitization. Secondly, the government will not be under illusions about popular resistance to digitization. What the UP outcome has proved is that, if anything, the public at large has welcomed the shift towards digitization. We can now see greater incentives for digitization, greater thrust to digital infrastructure, special privileges to digital services etc. This could have large scale implications for digital enablers, digital hardware, digital software and digital leveraging companies. Put together, they could add up to a big story and that could be the theme for Indian equity markets in the coming months.

 

If anything, the equity markets will celebrate the verdict of state elections. New highs and their sustainability will still be predicated on how corporates perform and how the quarterly numbers pan out. But the building blocks for the big push have surely been set!

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