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India elections: Possible impact on the country’s economy

In India, the elections for a new parliament started April 11. Until May 19, 900 million voters elect their new leader for the next five years. The counting votes will start on May 23. However, it is unclear when the final result of the parliamentary elections in India will be known.

The leading candidate of the election is the incumbent Prime Minister Narendra Modi from the ruling Hindu-nationalist party Bharatiya Janata Party (BJP). The main opposition party is the Indian National Congress (INC) led by Rahul Gandhi –  a great-grandson of India’s founding Prime Minister Jawaharlal Nehru.

India elections: Promises to become the third biggest economy

The ruling party Bharatiya Janata Party (BJP) promises to turn India into the third largest economy in the world by 2030. Under manifesto titled ‘Sankalpit Bharat, Sashakt Bharat’ (Determined India, Empowered India), the party that supports incumbent Prime Minister Narendra Modi targets to expand India’s economy to $5tn by 2025 and doubling it to $10tn by 2030.

Modi pledges to disburse around $1.44tn investment for national infrastructure in the next five years. The break down of investment was not published, but it targets to double the number of airports in India and increase the capacity of renewable energy in the country.

Currently, India economy is the seventh-largest in the world based on nominal GDP. In 2018, India’s GDP reaches $2.96tn with 7.3 per cent growth rate. IMF predicts India economy will grow at 7.5 per cent rate in 2019 and sustainably rise at 7.7 per cent rate between 2020 and 2023.

India-Real-GDP-growth
India Economy: Real GDP growthIndia-Real-GDP-growth

India elections: Modi’s rival criticizing previous decisions

Meanwhile, the leader of the main opposition Congress party Rahul Gandhi strongly critisised Modi’s decision to demonetisate Indian rupee in November 2016. Gandhi told supporters at a recent rally that the decision was ‘ill-thought’ and has destroyed jobs and small enterprises. Modi ‘failed to plan India’s future and create work for young job seekers.

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The Centre for Monitoring Indian Economy estimates that around 11 million people lost their jobs last year as a direct result of Modi’s policy. According to the National Sample Survey Office (NSSO), India’s unemployment rate hit a 45-year-high of 6.1 per cent in 2017-2018.

However, Modi insisted his move was aimed to modernise the country’s economy and raise tax income. He also introduced goods and services tax (GST) as his second major economic reform. On his recent campaign, BJP promises to continue simplification of the GST process.

Other economic reforms led by the Modi government are including opening new sectors for foreign investment and the introduction of the Insolvency and Bankruptcy Code (IBC).

Impacts on India’s economy

During the campaign period, both BJP and INC announced their target to improve India economy. Both of the parties pledged to increase spending on infrastructure, focus to build highways and airports and modernize railways. For the manufacturing sector, INC aimed to raise the contribution of the sector to India’s GDP from 16 per cent to 25 per cent, while the incumbent party plans a new industrial policy to boost the competitiveness of companies in the sector.

Business outlet India Briefing assessed that despite numerous incentive schemes and pledges for reforms, “the government has not shown the willingness to reform the outdated land and labor policies that often impede investments,” it wrote.

According to an analyst from Aberdeen Standard Investments Yashaswini Dunga, Modi’s winning will create a positive impact on the market in the short run as the administration will continue their current reform process.

“The Modi-led government has made progress on simplifying the tax code, dealing with corporate insolvencies and non-performing assets in a pre-emptive manner,” wrote Dunga in a report published in last March. The analyst adds that the reform of labour laws was slow and that it “hold back productivity in the manufacturing sector and land acquisition laws, which remain a hurdle for the industrial sector.”

In case of a Modi win, the Aberdeen analyst predicts that Goods and Services Tax will move eventually to a single rate once the revenue collections stabilise. He also expects an acceleration of the Prompt Corrective Action (PCA) framework, which is designed to reduce the incidence of non-performing assets (NPAs) in the India banking system – stabilising the economy from a macro perspective.

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