What does the Narendra Modi Government mean for the Indian Economy?

Posted by: on Jul 23, 2014 | No Comments

“India has won. Good times ahead.”

This is what Narendra Modi tweeted when his party achieved an irrefutable lead in the elections earlier this year. Now that Modi has formed his government at the centre, what does the new government have in store for the third largest economy in Asia? Most experts answer this question saying that India should see decisive governance in the next five years, characterized by market-based economics that focuses on investment, jobs and growth for the nation as a whole. Analysts believe that a recovery in the Indian economy will be gradual and will need to be led by investment.

The rise in investor sentiment and foreign investment, along with a recovery in the stock markets predicted by market analysts, is already underway following the swearing in of Narendra Modi as the Prime Minister. What else does this government have in store for the nation?


Indian Economy & the Modi Government

Narendra Modi’s track record of 12 years in Gujarat does give a lot to hope for. The state saw unprecedented growth, along with ease of doing business. However, the aspect that is the most encouraging is that after a long time, India is seeing a single party form the government, without any need of coalitions that would only lead to conflicts and disagreement when it comes to framing government policy.

In a recent interview with The Times of India, Adrian Mowat, JP Morgan’s chief Asian and emerging market equity strategist, said, “The appeal of Mr. Modi is that at a regional level he has proved a successful administrator, made decisions quickly, pushed through the normal inertia of the bureaucracy, and that’s what investors and the local business community are very keen to see in India… What investors are looking for is effective governance, rather than ground reform.”

On the other hand, Ketan Dalal, managing partner at PriceWaterhouseCoopers India, stated, “People would be a lot more willing to come into the country now, and foreign companies that have been looking to enter the Indian market will be much happier coming in.”

The Congress-led coalition, experts say, did not give domestic and foreign investors the much needed confidence. Government policy led by Modi is expected to bring about a positive change in this regard. In fact, most analysts are of the opinion that the new government at the centre will bring about changes that will impact all aspects of the Indian economy, including infrastructure, fiscal, governance and industrial reforms. These reforms, experts say, will be driven by a decisive government structure, stability in composition and an economic focus.

Following the dismal 5% GDP growth seen in the past few years, the new government has given hope that the growth rate will rise significantly in 2015-2016 to anywhere between six and seven percent.

“I feel India’s economic growth will surprise us all in near future, despite the underexposure to equity. We could be staring at economy growing at 8-8.5% in the next three years,” said Rakesh Jhunjhunwala, a partner at Rare Enterprises, in an interview with ET Now.

For now, we’ll have to wait and watch what the Modi government’s budget has in store for the country. The BJP administration is currently seeing its honeymoon period and it is difficult to assess how long this will last. Campaign pledges are still fresh in the minds of the people and everyone is looking for signs that their hopes will be realized in the near future.

Leave a Reply