With the Indian election now under way, running g until 4 June, Michael Langham, Emerging Markets Analyst, abrd, looks at how investors may be affected.
We expect Prime Minister Modi to win a third term, a widely held view, given the popularity of Modi amongst voters and the lack of momentum behind the main opposition, the Congress party.
A third Modi term is unlikely to deviate much from his prior policy path, given the optimism surrounding India’s economic outlook and his popularity amongst voters. While the specifics around potential reforms are not yet disclosed, Modi has signaled his intention for an aggressive initial 100-day programme of reforms in his third term. The BJP manifesto leans heavily on agriculture and manufacturing, so these areas are likely to be prioritised.
Ultimately job creation remains at the heart of Modi’s economic drive, with India’s working age population rapidly expanding and challenges around job creation in productive sectors of the economy. Opportunities for India are arising as a result of global geopolitical tensions and the resultant shifts in supply chains, and already India has seen some benefits from investment flows.
Improving infrastructure and leveraging the successes in the digital economy appear key pillars of Modi’s economic model going forward, with some initial success evident in his second term. Yet, it remains to be seen as to India’s ability to attract investment into manufacturing in a way that really can transform the economy to a higher potential growth path. Protectionist tendencies within the ‘Made In India’ initiative highlight the frictions around shifting towards a more export-led economic model.
The pandemic was a major disruption to Modi’s second term plans, but there is a lot of optimism priced in around Modi’s third term given India’s strong economic performance. In some ways this means the bar for disappointment is quite low, but if Modi can take steps to unlock higher productivity and workforce participation then India could surprise even current market expectations.
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