BJP's victory in Assembly elections spells policy continuity: Analysts

The ruling Bharatiya Janata Party’s (BJP’s) victories in the recent state elections, which were also seen as a mandate for Prime Minister Narendra Modi’s performance, has ensured that there will be policy continuity and no sudden shift to political populism leading up to the Lok Sabha elections in 2024, economists say.
 

They are also of the view that in spite of a very strong mandate, the Modi government at the Centre will not revisit contentious factor market reforms like the withdrawn farm laws and land reforms.
 

The focus till 2024 will now be on measures to revive the economy from three waves of the Covid-19 pandemic and shielding India as much as possible from the global upheaval in geopolitical conditions and commodity prices due to the war in Europe, the analysts say.
 

“Even with policy continuity, the results are not likely to impact market direction much, and the focus will be squarely on how policymakers minimise the economic cost of the geopolitical quagmire,” said Madhavi Arora, lead economist with Emkay Global.
 

“With Brent likely remaining elevated in the near-term, there could be a discernable adverse terms-of-trade shock for the economy that simultaneously pressures growth, inflation, and external balances,” Arora said.
 

Arora said her firm expects FY23 retail inflation to average above 5.6 per cent and real GDP growth below 7.5 per cent. This compares with the Reserve Bank of India’s growth assessment of 7.8 per cent.
 

On Thursday, BJP’s Yogi Adityanath became the first chief minister of Uttar Pradesh in 37 years to retain power for a second term, winning 255 of the 403 seats. While the party registered victories in Uttarakhand, Goa and Manipur, the Aam Aadmi Party wrested power from the Congress in Punjab.
 

“In the very near term, the focus remains on the crisis in Ukraine and shielding India from the economic after-effects. In the slightly longer term, over the next couple of years, I think the government would try to continue to focus on growth revival,” said Rahul Bajoria, India Economist with Barclays.
 

While there could be some more reforms pursued in terms of improving tax compliance and restructuring GST, large factor reforms are unlikely in the near term, as the Centre has many things to deal with, Bajoria said.
 

“While there is a willingness to undertake difficult reforms even to the point where they are politically unpopular, I think in the current context of global uncertainty, the probability of the government stretching the system by carrying out major factor market reforms is low,” Bajoria said.
 

In November, the prime minister withdrew the three agricultural laws after a year of agitation by farmer associations on the borders of New Delhi and other parts of the country. In Modi’s first term, the planned land reforms were shelved after ‘suit-boot ki sarkar’ jibes by Congress leader Rahul Gandhi.
 

The focus, according to economists, will be on the Centre’s two economic revival planks: Massive public investment in infrastructure and targeted social welfare handouts and schemes.
 

“The continued strong majority of the BJP, especially in Uttar Pradesh, suggests a further policy thrust towards boosting economic growth and reform momentum. We expect continued policy focus towards boosting capex and other social welfare spending over the coming months,” said Tanvee Gupta Jain, chief India economist at UBS.
 

Gupta warned that in the near term, policymakers need to be cognizant of uncertainty due to the Russia-Ukraine conflict, its impact on commodity prices and widening of India’s macro stability risks.
 

She said cutting excise duty would help buffer household purchasing power and support their consumption but would further shrink fiscal space available to spend on other productive sectors, including infrastructure.
 

“One of the success areas for the government has been to be able to execute long-term infrastructure projects and to also have a social safety net. As the pandemic winds down, maybe we will see some tweaks in the quantum and structure of these schemes, but we expect there to be plenty of targeted welfare support,” said Bajoria.