Erste Asset Management Investment Blog

“Back to business” after the election in India?

“Back to business” after the election in India?
“Back to business” after the election in India?
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The parliamentary election in India will begin in the coming days. A total of 970 million people will be called upon to cast their votes in the world’s most populous country (India is now just ahead of China with around 1.4 billion inhabitants) and the world’s largest democracy.

Lengthy election phase

The election will be held in a total of 7 phases over 44 days. The long duration is justified by logistical and security requirements (elections were held in 39 days in 2019). The opposition critically notes in this regard that an (overly) long election period tends to benefit the incumbent Prime Minister Narendra Modi and his Bharatiya Janata Party (BJP), as they have a well-filled campaign budget and better access to the media and can act accordingly.

Prime Minister Modi in favorite position

In general, a clear victory for the BJP and its allies is predicted. In 2019, the alliance won 350 out of 543 seats; current forecasts predict further gains and expect a total of 370 – 400 parliamentary seats. Anything other than a third term in office for Prime Minister Modi would therefore be a huge surprise.

Despite these signs, alarming events have recently been observed during the election campaign: There have been complaints of intimidation of the opposition, particularly through arrests (including that of well-known opposition leader Rvind Kejriwal). In addition, the authorities also intervened negatively in the election campaign and, for example, froze the accounts of several opposition parties on questionable grounds.

Note: Past developments and forecasts are not a reliable indicator of future developments.

The chart shows the growth of the real gross domestic product (GDP) of India in the last 10 years, as well as a forecast for the years 2024 to 2026.
Strong growth: According to the forecasts of the International Monetary Fund (IMF), the Indian economy could continue to grow dynamically in the coming years.

Increasing tensions in the country

But even before that, the Prime Minister had already acted on several levels outside of the much-praised reform processes in order to create an atmosphere for his party and himself. Among other things, people of Hindu faith have recently been given preference in immigration (especially over Muslims).

Additional tension between the religions has arisen due to the permission that several mosques must also be opened for Hindu prayers. The nationalist orientation of the BJP’s politics is clearly reflected here. Observers believe that tensions arising in this way are accepted politically in order to unite the core electorate.

More initiative in the fight against poverty – but not without calculation

A change in focus has also been evident in the fight against poverty in the years since 2019: since then, free benefits (food) and subsidies (housing, petrol) have been significantly increased. After social spending remained stable, there was a redistribution within the department. This is very positive for those affected, but unfortunately Modi links this aid to his party and himself by being printed on the grain donations, among other things. He thus appears as an omnipresent figure and tries to expand his influence within the state.

As popular as Narendra Modi undoubtedly is nationally, his actions are now being viewed critically abroad. The desire of many Western companies to find a more stable location compared to China is unfortunately being undermined somewhat as a result. Geopolitically, India is also not quite in the position it could be in (positioning itself as a strong counterweight or alternative to China) due to its current Russia-friendly policy.

India as the new counterweight to China?

India’s economy is booming and could grow even faster in the future. Within three years, India wants to become the third largest economy in the world – after the USA and China.

👉 Read more

Conclusion: hope for a return to a pro-Western course

It remains to be hoped that a pro-Western course will return to the fore after the elections. After all, India’s macroeconomic development can be described as very positive – last year, the country recorded the highest GDP growth among the relevant economies worldwide.

For the years 2024 and 2025, the OECD and the World Bank also expect the highest growth in India with rates of over 6% each (China is pushed into third place by Indonesia).

Note: Forecasts are not a reliable indicator of future performance.

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