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.
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.
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