The Business Times

Modi's mandate can change India

Published Tue, May 20, 2014 · 10:00 PM
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THE unexpected landslide victory of the Bharatiya Janata Party (BJP) in India's general election is a resounding mandate for governance rather than just government and for economic development and opportunity rather than handouts and subsidies. There are two aspects of the result that are particularly striking. The first is that having won 282 out of 543 seats, the incoming BJP government led by Narendra Modi will be the first to win an absolute majority since 1984; the era of messy coalition politics which has dogged India for the last 30 years is over, at least for now. The second, which is perhaps equally important, is that the BJP was able to win votes that cut across caste, class and, to some extent, regional and even religious lines which have traditionally defined electoral performance in India. This suggests that the era of "identity politics", too, may have passed. Issues of development, governance, decisive leadership, performance and delivery have instead come to the fore. If this is a permanent shift in the expectations of the electorate, it could have huge implications for the India story going forward.

Economic analysts have, almost without exception, hailed India's election result with enthusiasm. Moody's Investor Service has described it as a "credit positive" event. Morgan Stanley has suggested that it could spell the end of stagflation in India and has upped its growth forecasts. Portfolio investors have rushed into India's stock markets, which have soared more than 30 per cent since September, when Mr Modi was first named as the BJP's prime ministerial candidate, and the Indian rupee has hit an 11-month high.

But while this resurgence of confidence is encouraging and perhaps justified, it will take more than confidence to lift the Indian economy. The challenges are well documented. On the macroeconomic front, India has two chronic problems, high inflation and a large fiscal deficit. It also has an infrastructure deficit, which in turn has handicapped the manufacturing sector, wherein lies the promise of the millions of new jobs that Mr Modi's government says it is determined to create. A thicket of regulatory obstacles and problems with land acquisition have made business difficult, for Indians and foreigners alike. On the social front, standards of health and education, although improving, are still abysmal.

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