The Past
In 2014, the Bharatiya Janata Party (BJP) won 282 seats out of the 543 Indian lower house seats, the first outright majority by any party since 1984. Mr. Modi formed a government under the National Democratic Alliance (NDA), which included some smaller alliance partners, but was clearly dominated by the BJP. Since then, the NDA has gained control of a number of further states during various state elections, culminating in a resounding 2017 win in the state in Uttar Pradesh (UP), India’s most populous and politically most important state with 80 seats available.
In the following years there have been some setbacks for Mr. Modi, losing ground to the Indian National Congress (Congress) in Madhya Pradesh and Rajasthan state elections in December 2018. In addition, the recent alliance between two local parties in UP (the BSP and the SP) is likely to reduce the BJP seat count this time around. That said, the BJP has been building alliances too, with recent deals announced in Maharashtra (with Shiv Sena) and Tamil Nadu (with the ADMK).
The Present
There is always some anti-incumbency in India and Modi’s extensive reforms have not yet resulted in obvious economic gains for much of the broader population. Some, such as the direct distribution of benefits via the personal Aadhar cards and the affordable housing policies are all round winners, but demonetisation and GST have produced both winners and losers, in the short term at least. Farmers have struggled thanks to lower farm prices (ultimately a positive sign of plenty), and it remains to be seen whether the recent generous budget handouts, aimed at alleviating this, hit their targets in time. However, the Indo-Pakistan conflict is potentially helpful to Modi, and his strong leadership style.
Perhaps most importantly, Modi’s abilities on the campaign trail are yet to be unleashed on the electorate. In Karnataka last May the BJP were lagging until Modi himself stepped in. The BJP went on to win the popular vote, against expectations, albeit the Congress ultimately cobbled together a coalition government. Rahul Gandhi’s personal popularity, although improving, still lags a long way behind Modi’s.
The Future
The likelihood of a BJP majority looks very remote this time (probability: 5%), so a coalition looks inevitable. Out of the 543 seats, the BJP are likely to be able to form a government if they win 200 seats or more (probability: 75%). Clearly, the closer to the magic 272, the stronger the coalition and the better for the stock market. Below this, and Congress will likely form the government (probability: 20%), and there would inevitably be short and sharp market weakness.
The medium-term consequences may not be as adverse as we might have believed in the recent past, largely thanks to the progress made already by Modi so far. Manifestos across the field are common on affordable housing, farmer welfare, job creation and infrastructure etc. There is no desire to change tack from any side, albeit the pace of further reform may be slower under a Congress led government. Ultimately, this does not change the highly positive demographics of India, nor the huge investment opportunities this presents as the Indian consumer gets inevitably richer.
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