News Wrap: Elections and the Economy
With the first phase of voting in India’s impending national elections scheduled to begin on April 7, a number of financial services firms and ratings agencies have weighed in on the likely economic impact of the elections.
Morgan Stanley, in a report titled ‘India Economics: Five Key Reforms to Fix India’s Growth Problem,’ focused specifically on the need for productivity-boosting reforms to strengthen India’s macroeconomic fundamentals.
“In the near term, the pace of policy reforms will remain slow as India gears up for national elections…Currently, we are assuming that the election will produce a stable government, which can then take up some of these reforms in a steady fashion, following the formation of new government. It is in this context that we think the outcome of general elections in India will be the key to determining the pace at which reforms are implemented.”
Credit rating agency Moody’s projected a BJP victory based on widespread voter dissatisfaction with the state of the economy.
“The current Congress-led government is likely to be ousted after a disappointing second term. The economy is weak and business confidence and investment sit well below where they should be. The new government, likely to be led by BJP candidate Narendra Modi, offers a chance for better governance.”
Analysts at Bank of America Merrill Lynch analyzed India’s economic prospects in the context of the global economic environment.
“We can only emphasize that the global economic cycle drives growth far more than who rules in New Delhi. It is for this reason we caution against extreme euphoria a la 2009 or utter despair a la 2004 on May 16, [when election results are announced].”
Swiss bank Credit Suisse provided a more sober assessment in a research note prepared for its clients titled ‘Elections: Much Ado About Nothing.’ The bank disagreed that a newly elected government could trigger a pick-up in investment.
“Hopes are high among investors that elections can re-start the investment cycle. Even if the electoral verdict is favorable, such misplaced optimism ignores the realities of the business cycle, and overestimates the powers of the central government. Only a fourth of investment projects under implementation are stuck with the central government; the rest are constrained by overcapacity, balance sheets, or state governments.”