India: Modi's BJP sweeps general elections - Rabobank

Rabobank analysts point out that on 23 May, the Bharatiya Janata Party (BJP) led by Prime Minister Narendra Modi won the general elections in India and the number of seats won (303) was much larger than expected and means that BJP will have a majority (272 seats required) in the lower house (Lok Sabha), thus giving Modi a clear mandate to follow through on its reform path.

Key Quotes

“Modi has made important progress on opening up India for foreign investments and has reformed the tax system. These reforms have benefitted growth and led to an increase in foreign investments.”

“Going forward, however, we believe that a Modi-led government in the second term will struggle to implement the more difficult reforms that stalled during the first term, such as labour market and land reforms.”

“These reforms are necessary to lift India’s economic growth above 7%, which is lower than what the government is aiming to achieve. In fact, in the short term, we believe that economic growth faces downward pressure which will prompt the central bank to cut rates in 2019. We believe USD/INR will slide to 72 later in 2019.”

“Moreover, external risks are tilted to the downside, such as a more severe US recession than we have currently pencilled in or a full escalation of the US-China trade war, which both will not bode well for the Indian economy.”