The Indian electorate, fed up with widespread corruption and stagflation, look set to oust the Indian National Congress party that has held power for a decade and vote in the reform-minded opposition Bharatiya Janata Party (BJP), polls suggest.
FinanceAsia is backing the BJP in the Indian elections, which kicked off this week, because its policies seem to be more in line with the economy’s needs.
The BJP’s manifesto promises greater investment in infrastructure and a review of the country's stringent labour laws. It also outlines measures to tackle rampant food inflation.
Although Congress is also pledging to spend on infrastructure, its credibility is undermined by its promise to hike benefits ranging from healthcare to housing. India may not be able to afford such largesse as it is going through the longest economic slowdown since the 1980s and the result could be to delay interest rate cuts.
We are mindful that manifestos can be idealistic and much depends on implementation. To be sure, the Indian economy’s structural problems will take time to correct and the winner may have to depend on the support of coalition partners that are less enthusiastic about reform.
So markets may be getting ahead of themselves: shares are trading around record highs and the rupee has strengthened against major currencies. With pollsters predicting a BJP win, a net $83.83 million flowed into Indian funds during March after 23 straight months of outflows, according to data provider EPFR [See chart below].
As a harbinger of the kind of sops to vested interests, haggling and horse-trading that may lie ahead, the BJP said in early April that it would ban foreign supermarkets from entering India’s retail sector, a move aimed at protecting its support among small shopkeepers.
The election kicked off on April 7 and runs until May 12 as about 815 million people register their opinion.
A month is a very long time in politics – exuberance should be held in check.