Macro Focus - May 2019
India’s elections: more of the same will not turn India into a superpower
  • Prime Minister Modi’s ruling alliance is expected to win a thin majority 
  • India needs a bold economic reform agenda
  • Untapped potential


Indian PM Modi’s party is unlikely to repeat its success of the previous election of 2014, in which its coalition of centre-right to right-wing parties won 62% of the seats. In 2014’s elections, Modi’s party, the BJP, supposedly the biggest party of the world in terms of membership, ran on an economic agenda. As the economic dream has not been realised, it’s now running on a nationalistic agenda, which has become only more intensified after the escalation of the conflict with Pakistan in February-March.

The PM is being challenged by the other major political party, the Indian National Congress, which has dominated India's politics for most of its history since independence in 1947. The party is headed by Rahul Gandhi, the son, grandson, and great-grandson of previous prime ministers. The Congress Party is part of a coalition of left and centre-left political parties, in power from 2004 to 2014. In 2014’s elections, it secured only 13% of the seats, the lowest in its history, as the people voted for a change.

PM Modi has been unable to keep the party’s economic promises in the 2014 election, including creating 10 million jobs a year. On the contrary, the unemployment rate has been on the rise, reaching 7.6% in April. Out of the total population of 1.3 billion, more than half are younger than 25 years. As millions join the labour force each year, the lack of job opportunities is one of the key questions of this election. Modi’s controversial reform of demonetisation of high-value notes hurt businesses and jobs in 2016. Lending is restrained by bad loans and rising interest rates after problems emerged at a nonbank lender IL&FS Group last year. Also, poverty remains endemic.

Another important topic is agriculture, which employs more than 50% of the total workforce and contributes around 16% to the country's GDP. Millions of farmers face rising costs and lower crop prices. Declining farmers’ incomes and record-high unemployment have hit consumer demand and economic growth. The economy is forecast to have grown by 6.5% in the first quarter (unemployment and GDP data are being questioned by the analysts). That’s too slow to catch up with China or create enough jobs.

Corruption is still widespread. Officials have confiscated close to USD 500 million worth of alcohol, cash, and gold that politicians had intended to distribute to voters.

With its young and growing population, many English-speaking and educated, and a thriving IT sector, India could be a balancing power in the region and in the world. Unfortunately, much of its potential is still to be used. The potential for business relations between India and our region also remains untapped. The results of the world's biggest election will be announced on May 23.

 

For more information about this report, please contact Ms. Liis Elmik, liis.elmik@swedbank.ee, +372 888 7206.

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