The end of Modi’s honeymoon

Indian prime minister Narendra Modi has suffered a serious setback in Dehli's state election.

Indian prime minister Narendra Modi's "aura of invincibility" has been shattered, says reuters.com. After a resounding national election victory last May and three wins in state elections since then, Modi's BJP party won a mere three out of 70 seats in the state of Delhi last week. All the rest went to a populist, anti-corruption group called AAP.

Some investors fear that the defeat could prompt the government to backtrack on the platform on which it was elected. After all, Modi's government, "despite lots of encouraging announcements", has yet to push through many of the promised "big economic or legislative reforms that would encourage investors to pour capital into India", says The Economist.

India's annual growth rate has slowed to around 5.5% from over 7% a few years ago, and structural reforms are needed to lift the economy's speed limit. Further foot-dragging would be bad news.

Still, that seems unlikely. While Modi's honeymoon is certainly over, this result does not "translate into a wider rejection of BJP by India", says Mizuho Bank's Vishnu Varathan. Delhi is a small state and the AAP party is based there; while it has managed to bounce back from being steamrollered by the BJP in the general election, it has yet to articulate a clear national agenda.

If anything, this result should prompt the government to redouble its efforts to get reforms passed and ensure growth has risen by 2019, when the next national election is due, says R Jagannathan on forbesindia.com. Importantly, the result has no impact on the government's position in the legislature.

It has a majority in the lower house of parliament but none in the upper house, where Delhi's three seats remain out of its hands. It won't be able to muster an overall majority until 2016, when 75 seats become available. So ultimately the key factor remains "how Modi manages his relationship with the upper house", says Shuli Ren on barrons.com.

Keep an eye out for the annual budgeton 28 February if you want to gaugehow hard the government is pushing reforms, says Jagannathan. All the changes Modi wants must be prioritised:a rise in the foreign investment capin the insurance sector, easing restrictions on large industrial projects acquiringland and a uniform nationwide rate of VAT. This could be the most important budget since deregulation began in the early 1990s.

Recommended

The return of the Marcos dynasty to the Philippines
Emerging markets

The return of the Marcos dynasty to the Philippines

The Philippines has elected Bongbong Marcos as president, three decades after his family was ousted from power in a popular revolution. What does that…
12 May 2022
Singaporean stocks: a cheap play on life after Covid
Emerging markets

Singaporean stocks: a cheap play on life after Covid

Singapore is returning to normal after the pandemic, with almost every sector in the stockmarket set to benefit.
4 May 2022
The emerging-markets debt crisis
Emerging markets

The emerging-markets debt crisis

Slowing global growth, surging inflation and rising interest rates are squeezing emerging economies harder than most. Are we on the brink of a major c…
30 Apr 2022
Indonesia aims to step up its economic growth
Emerging markets

Indonesia aims to step up its economic growth

Indonesia's economic growth has lagged that of neighbours such as the Philippines and Vietnam. But soaring commodity prices could change that.
28 Apr 2022

Most Popular

High inflation will fade – here’s why
Inflation

High inflation will fade – here’s why

Many people expect high inflation to persist for a long time. But that might not be true, says Max King. Inflation may fall faster than expected – and…
13 May 2022
Cryptocurrencies are crashing – so how low will bitcoin go?
Bitcoin & crypto

Cryptocurrencies are crashing – so how low will bitcoin go?

The entire cryptocurrency sector is crashing, with bitcoin now well below $30,000. This is big, says Dominic Frisby. So just how low could bitcoin go?
12 May 2022
What the Ukraine crisis might mean for ESG investing
Advertisement Feature

What the Ukraine crisis might mean for ESG investing

The Ukraine crisis has brought many of the issues around ESG investing into sharper focus. Where does the sector go from here?
3 May 2022