It is perhaps the first time in decades that a governing party has been re-elected and rewarded with a clear majority. While many economies in the world were grappling with the issue of Brexit, trade tension and the likes, the biggest impediment for India was uncertainty stemming from political instability. However, general election 2019 has put an end to the situation, offering clarity on the road ahead.
I am taking this opportunity to substantiate India’s growth potential and challenges the second innings of NaMo government is likely to face so that you can build your financial future in the right manner.
We believe it will be interesting to see who will take the baton of the finance ministry - will Jaitley continue it or will Piyush Goyal take over the reign during the second innings of NaMo. Anyhow, whoever becomes the finance minister, he/she will have to address the aspiration of the people who voted for the party to be in power. We believe one can expect a few goodies in the upcoming full budget that is due in a few months from now as a couple of them were already announced during the vote-on-account in February 2019.
Following are some of the points one can expect from
NaMo’s second innings:
Low and contained inflation
The first innings saw a controlled regime for inflation. I recall that of the past 10 elections; majorly all had ‘mehengai’ as an agenda that helped political parties win the election. This time it was different and the government has come a long way leaving behind the inflation concern. One can expect a similar stance from the government in the second innings with the central bank mandated to keep the inflation hovering in the range of 2-4%.
Foreign flows
Modi has done a commendable job in ensuring that India finds a place in the world map when it comes to investments. His numerous trips, dialogues have helped boost the flow in the economy from foreign soil - we expect a similar track record to be continued going forward.
Lesser roadblock to passage of reforms
In the previous innings despite a clear majority in the Lower House, the Upper House never passed the floor test for the NDA government where it lacked a majority. This resulted in a roadblock for many reforms. We believe, after a long time, a political alliance will see both the houses of the Parliament having a comfortable position. Thus, one can see a couple of good news in terms of the passage of reforms, particularly the ones that are not very common or could lead to surprise among the masses but may improve governance.
Domestic flows in the capital market
I believe, now, we don’t need to talk much on this. We all saw the reaction of the market on the day of the exit poll and we all know the kind of inflows that the mutual fund industry is witnessing after demonetisation. We expect the capital market to see an amplified flow from the domestic investors on the back of rising shift towards financial assets from traditional assets.
What to expect on the performance front?
Following are the points we could see on the performance from the NaMo 2.0 government:
Infrastructure and manufacturing
The first innings saw the launch of some aspirational programmes such as Smart City Mission, affordable housing, Metro, the new Bharatmala and Sagarmala projects, building or revival of regional airports, etc. Also, the speeding up of highway construction was one critical achievement for the government. We believe the nation could see a massive infrastructure build-out provided NaMo looks for a surgical strike in the sector executing the reforms passed in previous innings.
GDP, jobs, inflation
One would not deny the fact that the government maintained a healthy GDP growth rate of 7% plus while controlling inflation and maintaining fiscal discipline for the majority of years during its tenure. However, for the second term, it needs to tighten its wallet to manage the currency movement. The government also needs to come out with measures that can improve employment. I believe the capex in the private sector needs a push to create jobs in the economy. The capacity utilisation for India Inc. has improved to nearly 76% but some degree of slowdown in the last few months in a few key sectors along with the availability of assets through NCLT route could delay fresh capex. Thus, the government needs to cautious in its approach to dealing with private expenditure and job creation.
Start-up, technology and innovation
The NaMo government will surely work towards supporting the start-up community in India mainly from the tier-II and tier-III cities where the ‘Jugaad’ is taking the shape of innovation and is helping solve small problems. To sum up, we believe the government has gotten a big mandate on the back of its clean up activity conducted in 1.0. But, the success of the government in 2.0 effortless. While 300+ mark to a single party has been a historic victory after several decades, one cannot negate the fact that 2.0 will be all about execution with proper support from the alliance and the opposition. Thus, it remains exciting to see the magic Modi is planning during his 2.0 tenure and how he selects his top cabinet.
For investors, we believe the time is pretty exciting for investment but not with a myopic view. An investor needs to have a long-term vision and should remain committed to his/her picks that are fundamentally sound.
India is undoubtedly back on the right time, and it is a good time to invest, but persistence remains a critical factor for an investor.
(The author is Group CFO AP Globale and Sakal Media Group)
