Prime Minister Narendra Modi’s landslide victory in the weekend’s state elections has significant ramifications for India’s political and economic future, according to Alquity’s Mike Sell.
Modi’s Bharatiya Janata party claimed a huge victory on March 12 in the Uttar Pradesh state elections, and is on course to win 324 out of the 403 seats.
Sell said this is significant as the region is home to 200 million of India’s poorest people, which shows significant support for Modi’s overarching reform agenda across a wide range of classes.
‘The victory bodes well for Modi gaining a greater number of seats in the upper house of parliament, the Rajya Sabha. A two-thirds majority in the upper house - which the government currently lacks - is needed for passing several crucial economic reforms.
‘As India’s largest state in terms of population, with the highest number of seats in the upper house, the victory in Uttar Pradesh takes Modi a big step further in acquiring a majority in the Rajya Sabha,’ he added.
While Sell, who oversees three funds at the UK boutique including a Alquity SICAV-Alquity Indian Subcontinent fund, said this represents the ‘literal outcome of this election’, the longer-term implication is the increased likelihood that Modi will win retain office in 2019.
‘The Uttar Pradesh election results demonstrate that the popularity of the Modi government has not waned since his party swept to power in 2014, but, if anything, has strengthened. This trend is a surprise to many following the government’s demonetisation programme announced in November 2016.’
Sell said the election could have been used by some to protest the demonetisation move, which caused intense short-term disruption to a huge number of Indian citizens, despite its clear aim at tackling corruption.
‘In poorer areas where much of the local economy is informal, demonetisation caused families to go without daily essentials and small businesses to persevere without the oxygen of cash flow for several days.
‘Uttar Pradesh is a prime example of a state with a relative poor population and a cash-centric economy, with its people being among the worst hit from demonetisation. For these same people to then vote in their millions for the architect of such a policy is an extraordinary vote of confidence in the government’s broader objectives and the direction in which they are taking the Indian economy.’
This support, Sell said, is set to be reciprocated in more affluent areas while also showing a willingness by even the poorer regions to tolerate short-term difficulties for long-term improvements in the country.
‘It is this support and far-sightedness from voters that will allow the government to continue to drive India forward and, with a much increased probability, secure a second term in office at the next general election in 2019.
‘With India’s five year election cycle, this would imply that the country is likely to have a pro-growth, pro-business administration until 2024. This is clearly not priced into valuations for the market.’