The most obvious (possible) outcome of Congress’s disastrous performance in the just concluded assembly elections is that the economic reforms could suffer a setback. Worse than just policy paralysis, the UPA could actually accelerate on the populist highway in a desperate bid to woo voters in time for the 2014 general elections, further wrecking the country’s finances in the process. Strategists at brokerage houses are near unanimous in their gloomy outlook for the market because of the election results. But just like the market hates uncertainty, it does not think too highly of consensus either. Sifting through the otherwise bleak prognosis that most reports offer, here is why things may still pan out differently.
Morgan Stanley The immediate consensus reaction is that these results will trigger a wave of populism from the Congress government at the center. However, that would be a hasty conclusion given the country‘s fiscal balance and that general elections are another 24 months away. In fact, we think that these results could trigger a concerted effort to consolidate the fiscal deficit and raise growth through development so that social spending becomes more viable in 2013 ahead of the 2014 general elections. RBS A potential silver lining from these election results could be the Congress re-considering some of its supposedly populist measures, e.g., the introduction of the food security bill which is expected to add another 20-30 basis points of GDP to the government’s fiscal deficit. These measures have not yielded political dividends for the INC in the recent state elections, and could lead to a policy shift with the INC re-focussing on boosting economic growth via reform measures, and also shifting government expenditure to infrastructure rather than consumption. Enam With a fairly progressive Akhilesh Yadav running the show, issue-based support (to UPA) from SP may continue. At the same time, BSP may also instead be more amenable to extending outside support at the Centre given its weak standing in the assembly elections. Citi Not immediately, but the BJP – the primary opposition party – has put in a strong show (excluding in UP). This is something the market could start looking at for the next General Elections (2014, but who knows?). Remember, the BJP effected meaningful reform, when in Government (1999-2004). It might not be the same reform-oriented party – but it does have a track record source.. moneycontrol -- CA. Rajesh Desai -- You received this message because you are subscribed to the Google Groups ""GLOBAL SPECULATORS"" group. To post to this group, send email to [email protected]. To unsubscribe from this group, send email to [email protected]. For more options, visit this group at http://groups.google.com/group/globalspeculators?hl=en.
