India’s economy fuels Modi’s reelection

Modi is cruising to a third term in India [View in browser]( [Bloomberg]( Welcome to the [Year of the Elections](, Bloomberg’s new newsletter on the votes that matter to markets, business and policy amid the most fragmented geo-economic landscape in decades.  When the world’s largest exercise in democracy gets underway next week, there is increasingly little doubt about the outcome. After a decade in office, Indian Prime Minister Narendra Modi is widely [expected to win a third term](. With nearly 1 billion people eligible to vote, the process will stretch over six weeks starting April 19, with the results known only on June 4. Modi’s Bhartiya Janata Party is predicting an even bigger majority this time around. It’s buoyed by the fastest-growing big economy, and the fulfilment of populist, Hindu-nationalist promises, such as the inauguration this year of a contentious temple, where a centuries-old mosque once stood. Some 80% of India’s population are Hindus. India — and by default, Modi — have been the beneficiaries of geopolitical tailwinds as US competition with China heats up. Apple, Boeing and Micron have all promised to set up shop in India as they aim to diversify from China. By some estimates, [India may overtake China]( as the biggest driver of global growth by the end of the decade. Investors, meanwhile, have been piling into the country’s booming stock market; for a brief period this year, India’s exchange overtook Hong Kong’s in size. Modi, 73, has taken credit for all of this. He’s promising to keep the party going — pouring more money into the nation’s dilapidated infrastructure and pledging to turn the country into a developed economy by 2047. So confident is he of victory in the election that he’s reportedly asked for a first 100-day plan from his government. The opposition is on the backfoot, and increasingly crying foul. The 20-party alliance trying to oust Modi appears to be cash strapped, and lacking a cohesive strategy. They also allege that the [government is trying to hobble them]( by arresting key opposition leaders and by weaponizing state investigative agencies against them. The US State Department has taken note, calling for a fair legal process, [much to the government’s chagrin](. Led by the venerable Congress party, the opposition is hoping it will win over voters with its vision of a fairer, more equitable society with more wealth distribution, increased subsidies and programs for poor and lower castes, and less of the “crony capitalism” that they accuse Modi’s government of. Even as Modi seems set to extend his time in office, there’s a small chance that recent setbacks — including a Supreme Court ban on political funding through opaque instruments, [called electoral bonds](, championed by the BJP and criticized by the opposition — could still sway voters’ minds, and possibly even deny Modi the mammoth victory he’s anticipating. But that’s the best-case scenario for the opposition. With two months to go before votes are counted, the biggest question isn’t whether Modi will win, but how many years he wants to stay in power. — [Nishant Dahiya](bbg://people/profile/23606218) A BJP rally in Meerut, Uttar Pradesh, on March 31. Photographer: Prakash Singh/Bloomberg Indian Economy Q&A  Bloomberg Economy and Government reporter [Anup Roy]( spoke with Anubhuti Sahay, head of economic research, South Asia at Standard Chartered Bank, for her perspective. What is your view of Modi’s ambitions to make India a developed country by 2047? By 2030, India will be the third-largest economy, even going by the most conservative estimate. And it’s coming on the back of whole host of reforms which have been pursued over the past 10 years. What makes me more constructive is not what has been already done, but probably what the government is planning to do for the next five years. In its first term, the current government was not able to push through strongly on [land and labor reforms](. If they are able to do so now, it can be a very different India. Education and health have been talked about too, which is extremely important. We need like a decade of dedicated focus on the social infrastructure if the manufacturing base is to be expanded. We’ll have to be patient because it’s not like a tax cut, something that can just be announced. What is the difference now regarding the economic sentiment compared with 2014 when Modi first took office? This is not the first time that India is showing a growth rate of above 7%. But the big difference is before 2019, that 7% growth was not reflected either in business confidence or in consumer confidence. Now the optimism is shared. You can feel the energy and growth in the air, which was completely missing. What’s been the quality of government expenditure under the Modi administration? With this government, the fiscal policy turned out to be more prudent. Loan waivers, subsidies, were pared to a great extent. Whether it is for cooking gas, food, or fuel, everything has been pruned massively. There is this whole misconception that India is distributing food grains for free, or that the [subsidy burden]( is much higher. Look at the fiscal cost of food, fuel, fertilizer. It’s absolutely the same as it was in the pre-pandemic period. They have pruned the beneficiary list. So, the fiscal cost has not gone up much, but they are reaching the right set of audience. The quality of the fiscal deficit is much better. Because they have reduced unproductive expenditures and they’re spending a lot more on capital outlays. The Markets Take � Asia stocks team reporter [Chiranjivi Chakraborty]( outlines the possible market reaction. Investors are betting on a Modi win, at least based on financial market performance. The NSE Nifty 50 [Index](bbg://securities/NIFTY%20Index/GPO) has already gained about 3.5% since the start of January, while a Bloomberg total return index of the [nation’s bonds](bbg://securities/I14603IN%20Index/GPO) has risen 3%. Many investors see Modi’s reelection as the best way to sustain India’s growth story and lure more money from overseas. Global funds have [snapped up](bbg://screens/WFII) about $8 billion of the nation’s stocks since Modi’s party won key state elections in December, an outcome that boosted optimism he would win the general election too. Investors have taken a favorable view of Modi’s policies throughout his tenure, with local stocks rising in all but one year since he took to office in 2014. His market-friendly image has been burnished by an array of reforms including unifying the indirect-tax code, and encouraging companies to diversify their supply chains away from China.  At the same time, the near record valuations for India’s main stock indexes mean there’s plenty of room for losses if the likelihood of a Modi victory starts to diminish. A defeat for his government in the pending elections [may trigger a slump]( of as much as 30% for the nation’s stock benchmarks, Morgan Stanley said in a research note late last year. Corporate Stakes [India Edition newsletter]( author [Menaka Doshi]( looks at the impact on companies. A third term for Modi will mean policy continuity in everything from [infrastructure spends]( to [green-energy targets](. This bodes well for large conglomerates such as Adani, Reliance and Tata even as the informal sector struggles to recover from what some policy experts have described as “[forced formalization](”. A [local manufacturing incentive scheme]( covering 14 sectors has succeeded in some — such as [phone manufacturing]( with Apple, Samsung vendors adding capacity in the country. A Modi return may prompt a review of the scheme, strengthening of incentives and expansion to smaller players. Reform and divestment of public-sector entities is a [job half done]( and may be further delayed if BJP fails to form the next government in India — an unlikely prospect. Were the Congress and its allies to win, the focus could shift to government-supported employment, cash transfers to the poor, wider social inclusion, and a lower GST rate as pledged in the [Congress manifesto](. This could boost rural incomes and [consumption](. But any impact on government revenue and weak fiscal discipline will lead to higher funding costs across companies. [Sign up for Menaka Doshi’s India Edition newsletter]( – an insider's guide to the emerging economic powerhouse, and the billionaires and businesses behind its rise, delivered weekly. More from Bloomberg - Check out our [Bloomberg Investigates]( film series about untold stories and unraveled mysteries - [Bloomberg Opinion]( for a roundup of our most vital opinions on business, politics, economics, tech and more - [Next Africa](, a twice-weekly newsletter on where the continent stands now — and where it’s headed - [Balance of Power]( for the latest political news and analysis from around the globe - [Washington Edition]( for exclusive coverage on how the worlds of money and politics intersect in the US capital - Explore all Bloomberg newsletters at [Bloomberg.com](. Follow Us Like getting this newsletter? 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