Modi’s mandate could invigorate India

Posted by Guest in Market commentaries category on 21 May 14


With the Bharatiya Janata Party (BJP) on track for a majority in India’s lower house of parliament, even before we count allied parties, the elections have handed presumptive Prime Minister Modi a strong mandate.

There had been a risk that results would disappoint and that the optimism of recent months would sour. Instead, the count has surprised to the upside, giving investors a fresh injection of hope.

The inbox for the new government is a busy one. There is an investment bottleneck to clear, fiscal consolidation will be important, and central bank governor Raghuram Rajan is keen to move to inflation targeting. Over the longer term, inefficiencies in the land and labour markets must be addressed, and the tricky issue of foreign investment resolved. A majority for the BJP greatly reduces the need for compromise and could mean that we see reforms pushed through relatively quickly.

However, the BJP-led government will still have to negotiate with state governments and the upper house of parliament. State governments could prove particularly obstructive. In all though, this election result is a positive one for the Indian economy.

Important Information:
The views and opinions contained herein are those of Craig Botham, Emerging Markets Economist, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds.

Forecasts are subject to a high level of uncertainty regarding future economic and market factors that may affect actual future performance. The forecasts are provided to you for information purposes as at today's date. Our assumptions may change materially with changes in underlying assumptions that may occur, among other things, as economic and market conditions change.

This is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This does not exclude or restrict any duty or liability that Schroders has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system.

The views and opinions contained herein are third party and may not necessarily represent views expressed or reflected by Willis Owen.

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