December 2023

Political & Policy Issues to Watch

Defying the exit polls, the BJP scored a 3-0 win over the Congress in three crucial ‘Hindi heartland’ states. True to form, Rajasthan voted out the ruling party, with the vote-share-gap between the two contenders staying wafer-thin, at about 2%. Madhya Pradesh, where a tight contest was expected, instead saw a landslide for the BJP, which improved its tally to 163 (up by 54 from 2018) and its vote-share to 48.6% (up 7.5%). But it was Chhattisgarh, which most had expected to stay with Congress, that threw the biggest surprise, handing the BJP 54/89 seats (+ 39). The INC did win a consolation prize in Telangana, but this probably owed more to the ruling BRS’ missteps in recent months, as well as the BJP’s inability to find traction in Southern India. All said, the results reassert the BJP’s dominance in the North and shorten the odds that it will return to power at the Centre in 2024. (Indeed, even the loss in Telangana may help it, such as by pushing the BRS towards the NDA camp.) The Congress’ poor showing in direct fights with the BJP will also weaken its standing within the INDIA bloc, which is now showing clear signs of fraying.

A short Winter Session will consider a raft of bills

On the policy front, the short Winter Session of Parliament – perhaps the last full session before the pre-election code of conduct kicks in – will consider as many as 19 bills, including 7 new ones. Key bills under consideration aim to reform India’s penal code; change the process for selecting Election Commission members; and reshape certain aspects of the Jammu & Kashmir legislature. The latter may signal that the government is preparing both, to hold elections there (perhaps simultaneously with general elections) and to restore it as a full-fledged state.

Outlook for the Market

Beating forecasts by a distance, India’s Q2 (Jul-Sep) GDP growth was 7.6%, taking H1 growth to a robust 7.7%. This prompted several private forecasters to revise their FY24 projections north of 6.5%. Yet below the headlines, the latest figures point to pockets of weakness. Agricultural growth slowed to just 1.2% in Q2, and given a below-par monsoon, is unlikely to pick up much in H2, weighing on rural demand. Crucially, while manufacturing growth surged to 13.3%, services slowed to an unusually-slow 5.8%; trade, hotel, transport and communication services – a big employment generator – grew by just 4.3%. Private consumption was also tepid, with its share of GDP dipping to 56.8%, from 59.3% a year ago. Capex inched up to 35.3%, from 34.2% last year, but remains mainly government-led. Meanwhile, the lead indicators are telling a mixed story, with the GST numbers for October and November strong (e-Way bill issuances in October breached the 100 million mark for the first time) but the PMI indices dropping close to their lowest levels in a year.