India State Elections - Stable Polity, Policy Continuity Could Yield Growth Dividends: Nirmal Bang

Nirmal Bang Report

In key state elections results declared on Sunday, the BJP has won by a significant majority in the Hindi belt – Rajasthan, Madhya Pradesh and Chhattisgarh. Since the Hindi belt accounts for a large proportion of Lok Sabha seats, the probability of a BJP victory in 2024 general elections seems high.

Political stability and policy continuity generally bodes well for the Indian economy and equity markets. GDP growth over the past nine years has averaged ~5.7% - below the trend growth rate of ~6% over the past three decades, partially on account of formalisation measures (pre-Covid) and partly marred by the Covid-19 pandemic. The economy has doubled in the past decade (FY24E: $3.6 trillion), but it could potentially near ~US$10tn in the next decade.

The next decade could potentially see the benefits of formalisation and efforts to improve the share of manufacturing and secure India’s place in the World, both politically as well as economically. At the same time, we believe that some resources would have to be allocated towards those left behind in the race towards formalisation.

Despite supply shocks, the incumbent government has managed to keep inflation in check while avoiding excessive fiscal profligacy, both of which bode well for a stable interest rate regime. The current regime has also shown inclination towards internationalising the Indian rupee, paving the way for a stable exchange rate regime.

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