Political continuity could bode well for clean energy & infra spending: UBS

• Experts believe that the market has mostly priced BJP’s win as a single party as well as a BJP-led coalition.
• If BJP gets a single-party majority, progress could be seen in clean energy, and higher infra spending, says UBS.
• Women-centric policies have been improving, especially after female turnout was higher than that of males in 2019.
  

As India marches towards elections, research firms are projecting various scenarios based on possible outcomes. As per a report by the multinational investment bank UBS, if the ruling BJP gets a single-party majority, there could be policy continuity, which can bode well for business sentiment. Even the elusive private capex recovery might also receive a push.

“Further progress in supply-side reforms could be seen, including the clean energy transition, higher infrastructure spending - both digital and physical, a manufacturing push and other targeted policy initiatives towards the youth, poor, women and farmers,” says UBS.

Alternate scenarios

Experts believe that the market has mostly priced BJP’s win as a single party as well as a BJP-led coalition. If a scenario where the BJP fails to get a majority on its own and a BJP-led coalition comes to power, reform momentum could broadly remain similar. However, some tough policy decisions may not progress and/or are likely to be put on hold, including disinvestments, the land bill, and a uniform civil code.

“However, comfort about fiscal discipline could be less of a concern for investors in this scenario,” says UBS about a BJP-led coalition winning.

The third outcome could be a weak coalition led by the INDIA alliance. Even in the third case, the economic policy approach would be largely aligned. However, in such a scenario, markets could have concerns about fiscal discipline and a less decisive government, leading to lags in implementing supply-side reforms.

“There could also be a delay in the private corporate capex recovery due to weaker business confidence caused by the surprise political outcome,” opines UBS.

Rural economy on backfoot

Even as the broader economy’s growth has been on track — GDP is expected to grow at 7.6% as per government forecasts — the rural economy has been on a backfoot. Based on FMCG companies’ quarterly earnings, rural market recovery has remained elusive for most of the financial year, barring a few short-lived upticks.

Apart from tepid rural wage growth and the government's supply-side measures to contain inflation, rural demand was also impacted by weather-related uncertainty, including the subpar rainfall last year due to El Niño conditions.

“However, the Modi government did not announce any substantial pro-rural populist schemes in the run-up to the 2024 elections to entice voters. Instead, the government focused on inclusive growth (partly to cover pandemic shock) with expenditure on rural-focused schemes (including drinking water, employment support, housing and rural roads) up 16% CAGR over FY19-24,” said UBS.

Women-centric approach

Moreover, the BJP-led government has been focussing on women with policies centred around them, since 2023. This could be also due to the rising percentage of women in the electorate. Particularly, in the 2019 election, female voter turnout was higher than that of males.

India has around 970 million people who are above 18 years of age and eligible to vote. Based on the 2019 election turnaround, it’s expected to have 317 million women voters and 340 million men voters in the 2024 election.

“The growing inclination of political parties to offer targeted welfare benefits to women (cash support, free bus travel, cooking gas subsidies, women-centric legislation amongst others) is closely linked to the rising percentage of women participating in the electoral process over the years,” says the UBS report.

The Election Commission of India has recently announced that the 2024 general election will be held in seven phases between 19 April and 1 June. The counting of votes will be held on June 4.