Foreign investors are thrilled about Modi's win but don't know what to expect from him

Foreign investors are thrilled about Modi's win but don't know what to expect from him
Australian dollars are seen in an illustration photo February 8, 2018. REUTERS/Daniel Munoz/File Photo
  • Foreign institutional investors are awaiting the selection of ministers on Narendra Modi's new cabinet.
  • BJP's promises ahead of India's Parliamentary elections in 2019 lacked emphasis on the economy.
  • The opposition's attempts to draw focus on Modi's economic lapses fell on deaf ears.
  • Alastair Newton lists out three things that the Modi's new Cabinet of Ministers must focus on.
Sensex, the benchmark index at the Bombay Stock Exchange, soared past 40,000 for the first time ever at the same time Narendra Modi was marching towards a historic mandate for five more years as india's Prime Minister.

The markets were clearly cheering Modi's win. Foreign institutional investors bet a net of ₹1352 crore ($20 million) in one day when the BJP came back with a whopping majority, the first for any Indian party since 1984.

However, they have questions. "We know so little about what BJP’s economic priorities are for the next five years," a long-time India watcher and political analyst, Alastair Newton, Co-founder & Director, Alavan Business Advisory, told Business Insider. One thing that could signal the path is the impending selection of ministers in Modi's new cabinet.

Newton has no doubt that Modi is the best bet to revive India's slacking economy. "Even though this government is much better placed in the upper house today than it was in 2014, structural reforms are very hard. There are always winners and losers and vested interests have to be seen for structurally reforms to be successfully carried through. I genuinely believe that Mr Modi has the mandate which can be turned into significant structural reforms, but the question is, is the will actually there to do it?" he added.

Will Modi be like Reagan or Sanders?


Newton's apprehension is much in line with the angst of Morgan Stanley's Ruchir Sharma, who wrote in the New York Times this week that that India needs a free market champion some like Ronald Reagan but the people keep electing leaders who adopt socialist policies like the ones advocated by Bernie Sanders.

"Although I fully accept that, in relative terms, Narendra Modi is business friendly, he is philosophically prone to statism at heart, and in some countries, he would qualify as a socialist," Newton said as he lined up three important reforms that the new government in India must initiate as soon as possible-- privatisation of state-owned companies (particularly banks), improve basic education and healthcare (especially in rural areas), and invest in building cold storage to curb the wastage of agricultural produce.

" It will be a fortuitous time for privatisation of PSU banks because of the slowdown in the Indian economy. The discomfort the slowdown is going to cause can be overcome by a fiscal stimulus but the fiscal situation at this point is very tight indeed. And privatisation now, will give the government a little more revenue to play with fiscal stimulus," Newton said. In simple words, the government can use the money received from selling stake in companies to rev up the Indian economy. "I would chuck Air India, to be honest, into that as well and there are lots of other stuff as well which could be privatised," he added.

According to him, while the focus will be on job creation, it is just as important to create a labour force that is educated and healthy enough to fulfill those jobs adequately.

Interestingly, these three big reforms have been on Newton's wishlist since 2006. But there is hope. "What investors will continue to follow very closely is where the BJP 2.0 and Modi 2.0 is going to go on economic policy and priority. And that is going to start off with the makeup of the new cabinet when it is announced," he said.

Narendra Modi has retained India's iron throne and reduced rivals to dust