Bigger mandate for BJP will boost private investments, INR: Barclays report

Barclays is confident that economic conditions in India are ripe for a surge in private investments, with capacity utilisation levels currently running beyond 70 percent. “ .. with generally healthy corporate balance sheets in India, we think the comfort from likely policy continuity could reinvigorate private investment… higher private investment should make it easier for the government to achieve its stated fiscal objective of fiscal consolidation”.

“…amid a stronger political mandate, will likely strengthen confidence in the INR on the back of likely stronger portfolio inflows and longer-term direct investment flows,” the note adds.

Pushing the accelerator on fiscal consolidation in an election year highlights the government’s fiscal prudence, it further says. But Barclays does not expect this fiscal consolidation to be accelerated with the government on track to achieve its 4.5 percent deficit target by FY26.

BJP’S WIN TO PAVE WAY FOR MORE REFORMS

There is an expectation that a big mandate could enable the new government to push through pending reforms such as labour law implementation, land reforms and could also revive agricultural laws that had to be put on the back burner after massive protests from the farmer community. To be sure, the BJP manifesto is silent on these reforms.

Barclays predicts that sectors that are likely to continue with their elevated capex cycle include the commodity sectors such as aluminium, zinc, iron ore, steel production, logistics, and consumer-related sectors (airport, retail); renewable energy sectors are also expected to get a push.

POTENTIAL RISKS

Barclays explains that while India’s economic outlook remains quite favourable, “there could also be potential risk on the political front if the NDA government wins an even bigger mandate for the third term with an ‘enfeebled’ opposition.”

“In addition, given Modi’s popularity and political clout, the “key man” risk has been cited as a vulnerability of India, although in our view it is likely some time away from becoming a potential issue.”

In a scenario, if the NDA comes back with a smaller majority, it could still go through with its manifesto promises. The reform of the pension plan is something that the BJP could look at finalising. It could also continue with its infrastructure push and maintaining fiscal consolidation. However, a third scenario with a minority NDA government or an opposition government could slow the pace of fiscal consolidation. The paper states that while INC’s manifesto does not mention pension reforms, the party has switched to the Old Pension Schemes wherever it is in power.

“If implemented at the central government level, this could create an additional fiscal burden. It is notable that in the past, the BJP has also focused on populist schemes such as farm loan waivers in state elections (i.e., Uttar Pradesh assembly elections, 2017), but has been relatively less populist at the centre”.