We are in pre-election phase now, with elections due in 9 months, if not earlier. Recent opinion polls have caused markets to start worrying about fragmented results with increased probability of a Third Front Govt (ex BJP and ex Congress – the 2 key national parties). Indian national election outcome is very difficult to predict (last 2 results were a big surprise) but some quick stats help to give context. Around 10% of population’s support can possibly help a party form the Govt. i.e. 110-120mn voters. Vs. 2009, more than 100mn first-time eligible voters in 2014 and internet penetration has increased by almost 100mn (incl. mobile data) users.
Revisiting 1996-98 Third Front Gov’t (backed by Left Parties) indicates economic parameters (growth/fiscal) held up. Interestingly, that Gov’t introduced many progressive measures to increase foreign inflows, liberalise trade, develop equity markets and rationalise the tax structure (the FY98 Budget, presented in Feb ’97, was hailed a “Dream Budget”) – details inside. Markets though did de-rate initially (relative to GEM), and also pre-2009 when this was a worry. More than reforms, we think economy needs strong boost of administration to revive investment cycle. So leadership of a fragmented Govt will be key. The leader will likely be decided based on acceptability rather than just number of seats – some potential candidates have perceived positive administrative track record in their respective states.
Our Sr Analysts Predicted the
Formation of the United States of India way back in March 2012.
