NEW DELHI: With early trends in vote count showing a lead for the BJP-led NDA, stock investors are already cheering. BSE benchmark Sensex rallied over 700 points in early trade and Nifty scaled a new high as emerging trends suggested continuity of governance at the Centre.
Yet, economists and market veterans said while the euphoria was on the expected lines, this won’t change ground realities. The economy is already showing signs of distress and NDA 2.0 would be required to do extra bit to create jobs, address rural distress, kickstart investment spending and restrict the economy from slowing down further. All this the government will need to do with limited fiscal means.
The market will still have to wait for big-ticket reforms as even in the case of a solid majority for the NDA in Lok Sabha it will still have to wait till 2020-2021 to have the numbers in the Upper House, the Rajya Sabha.
Winning Lok Sabha elections alone won’t do, as approvals from both Houses of Parliament are a must for major reforms to see light of the day, analysts point out.
The Modi government was credited with a host of big reforms in the first five years. But it also faced brickbats for lack of job creation and stagnant farm income.
The general expectations, UBS said, are that NDA’s Prime Ministerial candidate Narendra Modi would need to maintain the momentum on reforms and focus on employment generation and the rural economy.
“Headwinds such as tighter financing conditions (led by the NBFC sector), lower fiscal headroom and sluggish disposable income have weighed on consumption growth. Fixed capex growth also decelerated as the government lowered capital expenditure (given budget constraints) and investment decisions have been delayed (due to political uncertainties surrounding the election),” the foreign brokerage said.
Many of the 50 big investors from the US and EU that UBS met over the past one month asked if the Modi government has intentions to undertake big-ticket land, labour, capital reforms which they considered critical for India to move on a sustainable growth path.
On the social front, rising income gap and communalism remain key worries and even a thumping victory in the election won’t take the blame away from NDA. It is likely that an NDA’s win, if it materialises, will be attributed more to the February airstrikes on Pakistan-based terror camps, which helped fuel nationalist sentiment, and less to bold economic policies.
Says Harendra Kumar, Managing Director at Elara Securities, “Growth and income have not taken roots, and emotions and a false sense of identity overrule our rationale. Indians suffer from a crisis of masculinity after years of subjugation under the British rule. A search for identity is deep-rooted in our psyche. Hence, the affiliation and positive response to chhappan-inch or Balakot strikes.”
In a note to clients, Kumar said until the response to this narrative is overtaken by other societal aspirations, one should agree that India still is a developing economy.
The pullback of investment spending ahead of the elections has already affected economic growth negatively. The combined impact of weak global growth and tighter financial conditions due to the NBFC stress has hurt demand segments across the board, said Nomura India. This brokerage expects GDP growth to moderate to 6.2-6.3 per cent during the April-September period from likely 6.6 per cent in March quarter.
“Near-term growth risks remain titled to the downside. Weak growth and inflation within the 4 per cent target should set the stage for a 25 bps rate cut at the June policy meeting,” Nomura said.
UBS said key priorities for NDA II should be to simplify GST, implement income support of Rs 6,000 per year to farmers, deliver on promises like affordable housing and healthcare schemes, boost capex on public infrastructure and strengthen the banking system.
Source: Economic Times