With nearly all 543 seats declared by the morning of May 17 the Bharatiya Janata party (BJP)'s victory in India's general election was secure as Narendra Modi arrived in New Delhi. The BJP announced that he would not formally take office until after Tuesday, however speculation as to the implications of this landslide for India's economy is already rife.
Modi faces overwhelming challenges on the economic front, though his victory comes at an auspicious time, with a background of world economic recovery and a strengthening currency
He will be under pressure to remove diesel and gas price controls, continue with economic reforms, privatise state-run firms, address the question of subsidies on basic commodities and reform labour laws. He will have the opportunity to use his majority to increase the cap on foreign direct investment in the insurance sector from the current 26 percent to 49 percent, and address the issue of toxic loans which form ten percent of the banks' aggregate lending.
However the next couple of months will be a period of uncertainty ahead of his first budget, expected in late June or early July. Meanwhile renewed buying by foreign institutional investors (FIIs) in the Indian equity market has strengthened the rupee. This has had both positive and negative outcomes – on the one hand it will make imports cheaper and reduce the pressure on government finances due to the high cost of oil subsidies; on the other India's export industries will take a hit as their products become less competitive in international markets.
We will get a better indication of the direction of the Modi government's economic thinking when he presents a budget in late June or early July. For now, however, it seems certain that importers and exporters alike will welcome his business-friendly stance. "The age of divisive politics has ended; from today onwards the politics of uniting people will begin," Modi said. "We want more strength for the wellbeing of the country ... I see a glorious and prosperous India.”
