In the upcoming parliamentary elections in India in April-May, Prime Minister Modi’s ruling Hindu-nationalist BJP party has to defend its absolute majority of seats in the lower house of the Indian parliament. We do not expect this to be an easy task as many of the country’s population groups have failed to genuinely participate in the successes of Modi’s reform policy. In rural areas, unemployment and underemployment are very high and so is discontent with the government. The Gandhi clan’s secular Congress Party has caught up significantly in voter favour. Last December it even succeeded in reversing the voting structure in three core Hindu states and in stealing the BJP’s majority in national parliaments there.
The Modi government’s net economic impact has actually been very positive. Its „Make in India“ industrial policy has already attracted many foreign direct investors into the country. Reforms have enabled India to considerably improve its ranking in the World Bank’s „Ease-of-doing-business“ index, rising from 142nd place (2014) to 77th place at present. The introduction of nationwide uniform VAT in mid-2017 ended the inefficient coexistence of regional excise taxes and improved conditions for domestic trade on the subcontinent. However, Modi is also criticised for errors, such as his „cash reform“ of 2016, which led to temporary slumps in economic output. The fact that he has recently exerted pressure on the central bank to adopt a more expansionary monetary policy and to generate higher dividend income for the state is also to be seen in a critical light, with Modi having thereby interfered with the central bank’s independence.
Most election observers currently assume the BJP will lose votes in the elections and possibly its absolute majority of seats, although remain the leading ruling party with the help of coalition partners. Nonetheless, it should be borne in mind that the Congress Party has benefited from the displeasure of disadvantaged population groups and has found favour among voters. It also appears to be a more suitable coalition partner for a large number of smaller parties than the BJP. It would be a small sensation if the Congress Party together with coalition partners won a majority in the lower house and received a mandate for a change of government. Nonetheless – such an election result cannot be ruled out.
Regardless of the election results in May, however, the environment for further growth in India should remain quite favourable this year. Lower import costs for energy and intermediate products will have a positive impact on manufacturing activity. Consumption by the middle class is likely to remain strong and overall consumer demand will remain the driving force behind the economy. Income support for poorer sections of the population announced by both major parties is also helping the economy. For this reason, we see good prospects for real economic growth of around 7 per cent in both 2019 and 2020, in other words, growth in the same order of magnitude as the 7.4 per cent rate just reported for 2018.