Political & Policy Issues to Watch | |
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Government-opposition relations have touched a new low, and there are perceptions that the polls may not be ‘fully fair’ | With India’s 6-week-long general elections commencing shortly, government-opposition relations have hit a new low. The arrest of several leaders, including in connection with the Delhi excise case, and the SBI’s release of electoral-bond data, have touched a raw nerve. While neither issue will move the needle in terms of electoral outcomes, the concerns raised by US and German diplomats, and by the UN Secretary General’s spokesperson, about the ‘fairness’ of the current polls, have cast a shadow. In the likely event the BJP forms the next government, it may be dogged by allegations, both within India and abroad, about whether the results truly reflect a ‘free and fair’ election. The implications, particular for ties with the West, are troubling. |
Several policy measures were squeezed in at the last minute, and lots of background work continues | Just ahead of the Model Code of Conduct coming into force, the government notified the controversial Citizenship Amendment Act (CAA), unveiled a new scheme designed to draw in global EV manufacturers such as Tesla, and concluded a ground-breaking, investment-and-jobs-linked trade deal with the 4-member European Free Trade Association (EFTA) bloc. A rash of policy documents have also been rolled out, including the findings of separate committees on simultaneous elections and digital competition law, and major reforms to the insurance sector are in the works. All of this goes to suggest that the new government will hit the ground running in June. |
Outlook for the Market | |
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| The Feb-Mar economic data are surprisingly robust and could push full-year growth past the 7.6% mark | With the last sets of data for FY24 filtering through, it is apparent that the Indian economy ended the year on a high note, possibly even exceeding the government’s 7.6% forecast rate of growth. GST receipts jumped by 11% in March and 11.6% cumulatively in FY24, indicating both strong underlying growth and improving compliance. The HSBC PMI index for manufacturing touched a 16-year high of 59.1 in March while that for services, at 61.2 (from an already-high 60.6 in February), was close to its highest in over 13 years. Exports and imports have accelerated in the most recent 3 months, reaching double-digit rates (albeit on a negative base) in February, suggesting that both domestic and global growth remains supportive. Meanwhile, car and two-wheeler manufacturers ended FY24 on a very strong note in March, with car sales setting new annual records. Boding well for this year’s monsoon, agricultural growth, and therefore rural consumption, last year’s El Niño effect appears to have given way to more favourable La Nina conditions |
| Inflation is edging down but the RBI remains vigilent | Inflation remains above the RBI’s comfort zone but appears to have plateaued. Even as food prices continue to rise at >8% rates, headline consumer (CPI) inflation has settled in the ~5% range and core inflation, which excludes food and fuel, is now below the 3.5% mark. However, with one eye on the cautious US Federal Reserve and the other on domestic inflation, the RBI kept interest rates unchanged for a 7th consecutive time in early April. |
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