The verdict is out. The Bharatiya Janata Party-led National Democratic Alliance (NDA) of Narendra Modi has returned to power with a massive, record majority unheard of in recent times, brushing aside doubts that problems surrounding the economy—in particular farm distress and unemployment—could pose a challenge to the ruling coalition. In fact, such was the power of the mandate given to Modi for a second five-year term in office that political analysts and pundits were left scratching their heads about how Modi—and BJP president and chief strategist Amit Shah—created a pro-incumbency wave which television anchors were calling a “TsuNaMo”.
Even as this piece is being written, the ruling NDA is leading in as many as 342 seats out of 542, with the BJP already having surpassed its 2014 tally of 282 on its own. Far from anti-incumbency, the results show Modi’s government has successfully created a pro-incumbency narrative with the electorate rejecting the Opposition’s efforts of putting up a coalition which many feared would not be able to throw up a leader even if it garnered the numbers. Some key Congress and Opposition leaders were trailing in their seats, even as a nation watched transfixed how the sheer grit, determination and detailed planning by the ruling party resulted in a historic return to power. Even in states like West Bengal and Uttar Pradesh, where the NDA was expected to face stiff opposition, the Modi juggernaut rolled on. In Bengal, the vote share of the BJP jumped dramatically in comparison to 2014 as state chief minister Mamata Banerjee saw BJP close on the heels of her Trinamool Congress in terms of seats.
As the mandate sinks in, India Inc reacted predictably, cheering Modi and the NDA, calling it a vote for stability. It was clear that, despite the obvious challenges to the economy, India Inc sees in Modi a strong leader who would deliver the goods.
Says Adi Godrej, chairman, Godrej Group: “The victory of the NDA in the elections will be very good for the Indian economy. I expect the Government to take strong action for the revival of GDP growth as soon as it is sworn in. Revival of GDP growth will lead to solution of other problems such as low number of jobs, low agricultural growth, etc. Overall, I see India doing very well over the next five years.”
Pawan Goenka, managing director of auto major Mahindra & Mahindra (M&M), says the decisive mandate “is perhaps even more decisive than most staunch supporters of BJP+ would have expected.” Says he: “This augurs well for the country because this is a reconfirmation by the country on the direction that the government had taken in its first term, allows continuity of this direction, and allows the government to complete its unfinished agenda.”
Underlining Corporate India’s desire for a stable and strong government, the M&M managing director adds: “We all wanted a strong government with a decisive mandate from the people to allow them to take bold decisions and we have it. [The] next five years can be golden years for India provided the government, the industry and the civil society work together.”
Harsh Goenka, chairman of the diversified RPG Enterprises is delighted with the return of Modi at the helm. Goenka says the result was “nowhere near the nail biting finish we got in the IPL final.” Says Goenka: “It is a Modi India wave and a rousing victory that signals the start of a new era. This result is a shot in the arm for the Indian economy which will benefit not only from the stability at the Centre, but from a robust pro-growth vision.”
Goenka says he is confident that Modi 2.0 will unleash “a plethora of development oriented investments in infrastructure, health and agriculture which could elevate India to a position of pride among nations of the world’’.
However, serious challenges need to be addressed once the new NDA government takes office. And Modi and his ministers would be well aware of that, having been reminded of some of them by the Opposition during a bruising and often bitter election campaign.
In a round-up of the economy called ‘Q1 2019 GDP Preview: Slowdown ahead’, issued on May 21, two days before the results of the election were declared, Barclays said the slowdown in growth dynamics further strengthened the case for policy support.
“We expect India's economic growth to moderate, registering a print close to 6% in Q1 2019, which would be a five-year low. The slowdown is likely to be led by the manufacturing sector, which is under severe stress. The prospects for agriculture do not look bright either, because rural wage growth remains paltry even as we see signs of nascent recovery in farm prices,” Barclays said in the review.
Services, the bank said, remain a mixed bag. “High frequency indicators such as sales of automobiles remained lacklustre, while FMCG companies report weak sales growth. Some support is likely to come from ongoing growth in construction and parts of the financial services sector, while public spending will also likely mitigate some downside growth risks ahead of elections.” The slowdown in consumption remains a cause for concern given its role as a key engine of Indian growth over the past decade, it added. The bank, calling the slowdown “broad-based”, said it saw the Reserve Bank of India continuing to give a policy push to growth, and expected another rate cut of 25 basis points in its June policy review.
Global credit ratings major Moody’s remained watchful in its initial comments after the election results came in. William Foster, vice president, Sovereign Risk Group, Moody’s Investors Service, said: “Any credit implications of the outcome of India’s general election will be determined by the policies adopted by the government in the next few years. These policies have yet to be formulated. At this stage, we expect the broad push towards fiscal consolidation to remain, although with greater policy emphasis on supporting low incomes.”
That the slowdown is on top of the minds of most in the markets and India Inc was evident even in the comments of Ajay Bodke, CEO, PMS, at Prabhudas Lilladher.
Says Bodke: “A Herculean challenge awaits the newly elected Modi government on the economic front. Problems galore and addressing them on a war footing to rev-up the fast slowing economic engine with faltering consumption, moribund private sector investments and anaemic exports should be the first priority.”
Strong and sustained revenue mobilisation, he says, is the need of the hour, and from the equity markets’ point of view, what the markets would be looking for would be consolidation of public sector banks, aggressive divestment of PSUs—especially “basket cases” like Air India, BSNL-MTNL—and increased private sector participation in sectors such as defence and railways. This apart, infusion of more transparency in managing behemoths like Food Corporation of India and Life Insurance Corporation and continuation of large investments in infrastructure would be things the Street would be hoping to see from Modi 2.0.
“This government can now afford to be very bold and do all the things that it knows are right things to do without having to worry about any political fallout. The decisive mandate gives them that luxury,” M&M’s Goenka says.
The equity markets cheered Modi’s victory with the S&P BSE Sensex hitting the 40,000-mark during the day, but eventually the benchmark index shed 299 points to close the day at 38,811, down 0.76% from the previous day’s close.
As the new Modi government settles in over the next few days for its second consecutive term, both Prime Minister Modi and his key economic ministers will know that the task is cut out for them going forward. Global headwinds and domestic challenges will need to be negotiated. But for now, it’s the laddoos and the celebrations. The euphoria of this massive victory will need to be savoured.