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The most important discussion in India’s corporate corridors is what will happen to the economy and its policies after the just-concluded general election.
What is the issue?
Essentially, the BJP-led NDA coalition won 293 of 543 seats in India’s lower house of parliament, significantly below the more than 350 it held before the election. The BJP itself could garner 240 seats against the majority mark of 272. A motley coalition of anti-BJP opposition parties, known by its acronym “INDIA”, nearly doubled its tally to 234.
What is the problem?
The election result has left PM Modi in a weakened position from the original belief that he is invincible.
Has it made his position fragile? With this impaired position, will the NDA be able to tackle India’s enormous economic challenges?
Given the somewhat fluid political situation, let me briefly explain how I see the position emerging for the business community.
PROS
* Continuity: The good news is there would be broad policy continuity. The NDA has governed India for the last decade and will continue to do so. BJP is still the single largest party, bagging 240 seats. The second party – Congress – is a distant second with 99. The business community can expect macro policy continuation, especially foreign policy, defense, and make-in-India initiatives.
* Democracy: The legitimacy of democracy in India cannot be questioned anymore. The world has watched the spectacle with bated breath, and almost none could predict the actual outcome.
* Peaceful: Despite 97 crore eligible voters in India, the process went off calmly. On the contrary, 38 political candidates were assassinated before the recent Mexican polls, with only 10 crore eligible voters. India has shown the world the real meaning of democracy!
* Finance: Key ‘finance-related’ policies will likely continue, including a controlled fiscal deficit, heightened investment in capital expenses, focussed rural upgradation, and enhanced allocation on health and education. No government can ignore these basics anymore.
* GST rationalization: With Andhra and Bihar being ‘consumption states,’ there will be pressure to replace the multiplicity of rates with 3-4 slabs, which is more uncomplicated. GST simplification is a distinct possibility.
CONS
* Coalition politics is back: As no party crossed the 272 majority finishing line, BJP has to necessarily take the views of several other parties, with every likelihood of policy-level differences;
* Welfare ‘freebies’ to accelerate: India’s welfare schemes are already generous. In 2022-23, spending on the 7 largest subsidy schemes totaled Rs 6,80,000 crore, more than twice the Rs 2,60,000 crore ten years back. With state elections coming up in Haryana, Maharashtra (in 2024) and Jharkhand, Delhi, Bihar (in 2025), there is every likelihood of it increasing. Excessive ‘freebies’ are not good for any economy.
* Reforms will suffer: India needs significant reforms to keep the growth engine chugging at 8-9 percent annually. Reforms usually involve decisions that could adversely affect some minority interests but are for the greater good.
Tough reforms which needed to be done in the Modi 3.0 are:
Unlock agriculture: Agri reforms—which were tried hard in 2021 but had to be rolled back—need to be reimplemented after a due process of consultation. This would have helped the corporatization of agriculture, better produce distribution and improved farmers’ prices. Unlikely to see the light of the day.
Labour reforms benefit labour: New labour codes introduced in 2020 needed to be rolled out. These codes provide more flexibility in new hiring or reducing employees, leading to higher employment generation in the formal sector and mandating social benefits for all. Not implementable without consensus amongst the states.
Land reforms for beneficial use: Land is a state subject. A strong central government can entail a system of unusable land that can be quickly converted for industries and infrastructure. Land needs to be accessed quickly with minimum legal impediments. Now, this seems to be a distant dream.
* Privatisation in backburner: Governments should not be in the business of running businesses. A long list of government undertakings needs to be privatized. Privatization of business helps maximize the optimum use of scarce resources. Efforts to diminish.
* Agricultural income tax to remain untouchable: Agriculture is a State subject. About 60 percent of the Indian population depends on agriculture for their livelihood, producing a 15 percent share of India’s GDP. None of it is taxed, being exempt. There are many prosperous agriculturists. They need to contribute to nation-building. Give them a higher income threshold for taxation (say beyond Rs 15 lakhs pa). This is now impossible to implement, given the high-voltage political situation.
Taking stock of share-market: No discussion on the election outcome can be complete without considering the behavior of the Indian stock market. ETCFO’s Senior Correspondent, Alekh Shah, rightly pointed this out.
Many have minted money in the stock market over the last decade of Modi’s rule. Share market sentiment is all about the ‘future.’ Pledging to transform India into a developed nation by 2047, the Modi government made massive capital expenditure on infrastructure, backed domestic manufacturing, enticed foreign investment, cut red tape, and promised to root out corruption.
Looking at how the stock market performed – the Nifty50 index has almost tripled in value, making India the fourth-largest stock market in the world.
PM Modi’s need to negotiate with his coalition’s smaller constituents raises the possibility of compromising on aspects of his economic agenda. Risks thus emanate. While investing, be selective about companies with sustainable earnings and ethical approaches. Watch the political environment for the next 3 months, before taking significant stock market bets.
The last few words
Many of India’s economic advantages are unaffected regardless of the election outcome. The vast, relatively young population will continue to provide India with a significant edge. India’s non-aligned global policy of not leaning towards the disturbed East and the unsettling West will continue to help distance itself from harmful hostilities.
The captain is always the key to any activity, whether home, sports or business. A nation is no different. As of now, the country’s commander is going strong. While imponderables are inevitable, positivity in India’s growth story can still be confidently uttered.
About the Author: Robin Banerjee is the Chairman of Nucleon Pvt Ltd, a global clinical research company. Earlier, he served as the Managing Director of Caprihans India Ltd. Robin has authored 3 bestselling business nonfiction books: (i) Who Cheats and How; (ii) Who Blunders and How; and (iii) Corporate Frauds: Bigger, Broader, Bolder.
Disclaimer: The views expressed are solely of the authors and ETCFO.com does not necessarily subscribe to it. ETCFO.com shall not be responsible for any damage caused to any person/organisation directly or indirectly.
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