No one can call market moves accurately, Indian elections are an even more treacherous field for forecasting. And the results are there for all to see.
Beyond the market’s wild gyrations last week, there’s a need now to pragmatically examine the likely implications of a Modi government in coalition and what it could spell for the India growth story.
A common sense approach suggests that India’s future could turn brighter, not darker with the compulsions of multi-party governance and a greater balance in the lower house of parliament. Let’s examine some of the key issues.
Fiscal discipline
The government for the current year, at least, has an RBI dividend largesse that can help it eke out some more expenditure on welfare, if needed, without disturbing the fiscal position. Going forward too, if growth rates hold up, tax buoyancy sustains and private sector capex kicks in, there should be enough elbow room to stay the course.
Make-in-India push
It is unlikely that any regional party, and definitely not Chandrababu Naidu-led Telugu Desam, will oppose investments in manufacturing that offset imports. True, they may demand that a reasonable slice of such investments make their way to the states they represent, but that will only correct any current regional disparities. Rather, they may actually go out to actively woo such investors and compete for such capital, making the investments more compelling and accelerating them.
Defence indigenisation
This is again a Central government policy that is unlikely to flip, and which has led to a significant boost for PSUs in the sector as well as drawn private sector investment. Unless defence budgets are cut, which is extremely unlikely, the momentum in this sector too should continue.
Some likely setbacks
Some initiatives like Uniform Civil Code and Agnipath Scheme for short-period recruitment in the armed forces are likely to face strong push backs. At the same time, the Centre will likely need to offer additional support to States like Andhra Pradesh for building out a new capital city and to Bihar given its weak economic profile. Both states have been demanding special category status that will ensure high Central financial support. While these may be issues that can have fiscal implications as well, any development-led support like envisaged for building the new capital of Amrapali in Andhra Pradesh will likely lead to economic benefits too.
There has been some speculation that one of the BJP’s allies might want their person in the Minister’s berth in the Railway Ministry. Interestingly, barring several other factors that might drive this demand, Indian Railways also happens to be the largest employer among government departments.
Jobs clearly are going to be in focus for several allies, and some have publicly voiced the “job creation” issue. And there is good reason for this demand. India’s demographic dividend could well turn into a curse if urgent action is not taken on this count. The recent reports of engineers passing out of top colleges in the country not finding jobs is just the tip of the iceberg. This phenomenon is very visible because the data is easily available from organized sources and the employment is in the organized sector.
That the I.T. services industry is going through a low patch is now well known, what’s more the advent of AI will likely push up productivity and curtail low-end job growth in the sector. But the greater worry is the slow growth in high employment service sectors like tourism, transport and trade. A fillip for jobs and for the rural economy if driven by political compulsions, will be good, not bad for the economy.
India Gross Value Added data clearly reveals that growth in the trade, tourism, transportation and communications sectors has significantly lagged those in areas like finance and realty and manufacturing over the past 5 years. In fact, its share of total GVA has dipped from near 20% in FY2019 to about 18.6% in FY24. And this needs correction.
Need for income, consumption
India needs job creation and employment opportunities to drive income growth, which intuitively is lagging as consumption of goods and services by the lower income groups is significantly lagging growth in the premium segment, which likely is driven by the wealth effect. A section of India’s well-heeled population has made significant gains in equities, gold and real estate leading to a consumption boom in the premium and luxury segments. But that isn’t what will sustain the economy for long. For sustainable growth over the next five years, with a clearly slowing global economy, domestic consumption has to emerge as a key engine. Attention to uplifting incomes and boosting consumption of the needy can thus go some way in boosting confidence, driving consumption and sparking private capex.
So affordable housing must start to see traction, not just luxury apartments, entry-level bikes should see a pick-up, not only the Harleys, rubber slippers should start flying off shelves, not just Onitsuka Tiger sneakers. For India with a pyramid income structure (large population of low income and poor populace), the masses have to start reaping the fruits of development not just the affluent. That alone will drive India towards prosperity and its goal of becoming a developed nation.
So, in a nutshell, from the face of things. The outcome of the 2024 Lok Sabha polls may actually drive India towards developing a more sustainable model for growth.
The investors' dilemma
Where does that leave investors? The lofty valuations in several pockets heightens the downside risk for those looking to buy stocks now. So, while those already invested can hold on to their investments, for fresh equity investments the task is going to get tougher. That said, there are still enough opportunities in the market, especially in spurned sectors with good long-term growth potential, that could be a good hunting ground today. But do your homework before you put your money to work.
Happy investing!
Beyond the market’s wild gyrations last week, there’s a need now to pragmatically examine the likely implications of a Modi government in coalition and what it could spell for the India growth story.
A common sense approach suggests that India’s future could turn brighter, not darker with the compulsions of multi-party governance and a greater balance in the lower house of parliament. Let’s examine some of the key issues.
Fiscal discipline
The government for the current year, at least, has an RBI dividend largesse that can help it eke out some more expenditure on welfare, if needed, without disturbing the fiscal position. Going forward too, if growth rates hold up, tax buoyancy sustains and private sector capex kicks in, there should be enough elbow room to stay the course.
Make-in-India push
It is unlikely that any regional party, and definitely not Chandrababu Naidu-led Telugu Desam, will oppose investments in manufacturing that offset imports. True, they may demand that a reasonable slice of such investments make their way to the states they represent, but that will only correct any current regional disparities. Rather, they may actually go out to actively woo such investors and compete for such capital, making the investments more compelling and accelerating them.
Defence indigenisation
This is again a Central government policy that is unlikely to flip, and which has led to a significant boost for PSUs in the sector as well as drawn private sector investment. Unless defence budgets are cut, which is extremely unlikely, the momentum in this sector too should continue.
Some likely setbacks
Some initiatives like Uniform Civil Code and Agnipath Scheme for short-period recruitment in the armed forces are likely to face strong push backs. At the same time, the Centre will likely need to offer additional support to States like Andhra Pradesh for building out a new capital city and to Bihar given its weak economic profile. Both states have been demanding special category status that will ensure high Central financial support. While these may be issues that can have fiscal implications as well, any development-led support like envisaged for building the new capital of Amrapali in Andhra Pradesh will likely lead to economic benefits too.
Push for jobs
There has been some speculation that one of the BJP’s allies might want their person in the Minister’s berth in the Railway Ministry. Interestingly, barring several other factors that might drive this demand, Indian Railways also happens to be the largest employer among government departments.
Jobs clearly are going to be in focus for several allies, and some have publicly voiced the “job creation” issue. And there is good reason for this demand. India’s demographic dividend could well turn into a curse if urgent action is not taken on this count. The recent reports of engineers passing out of top colleges in the country not finding jobs is just the tip of the iceberg. This phenomenon is very visible because the data is easily available from organized sources and the employment is in the organized sector.
That the I.T. services industry is going through a low patch is now well known, what’s more the advent of AI will likely push up productivity and curtail low-end job growth in the sector. But the greater worry is the slow growth in high employment service sectors like tourism, transport and trade. A fillip for jobs and for the rural economy if driven by political compulsions, will be good, not bad for the economy.
India Gross Value Added data clearly reveals that growth in the trade, tourism, transportation and communications sectors has significantly lagged those in areas like finance and realty and manufacturing over the past 5 years. In fact, its share of total GVA has dipped from near 20% in FY2019 to about 18.6% in FY24. And this needs correction.
Need for income, consumption
India needs job creation and employment opportunities to drive income growth, which intuitively is lagging as consumption of goods and services by the lower income groups is significantly lagging growth in the premium segment, which likely is driven by the wealth effect. A section of India’s well-heeled population has made significant gains in equities, gold and real estate leading to a consumption boom in the premium and luxury segments. But that isn’t what will sustain the economy for long. For sustainable growth over the next five years, with a clearly slowing global economy, domestic consumption has to emerge as a key engine. Attention to uplifting incomes and boosting consumption of the needy can thus go some way in boosting confidence, driving consumption and sparking private capex.
So affordable housing must start to see traction, not just luxury apartments, entry-level bikes should see a pick-up, not only the Harleys, rubber slippers should start flying off shelves, not just Onitsuka Tiger sneakers. For India with a pyramid income structure (large population of low income and poor populace), the masses have to start reaping the fruits of development not just the affluent. That alone will drive India towards prosperity and its goal of becoming a developed nation.
So, in a nutshell, from the face of things. The outcome of the 2024 Lok Sabha polls may actually drive India towards developing a more sustainable model for growth.
The investors' dilemma
Where does that leave investors? The lofty valuations in several pockets heightens the downside risk for those looking to buy stocks now. So, while those already invested can hold on to their investments, for fresh equity investments the task is going to get tougher. That said, there are still enough opportunities in the market, especially in spurned sectors with good long-term growth potential, that could be a good hunting ground today. But do your homework before you put your money to work.
Happy investing!
First Published: Jun 9, 2024 1:05 PM IST
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