Dec 18: With BJP emerging on top in both Gujarat and Himachal Pradesh Assembly polls, voters seem to have affirmed their faith in reforms initiated by the BJP Government and with Congress also gaining strength there could be more populist policies focussed on the rural sector in the next two years, analysts said.
Prime Minister Modi said that the Election results in Gujarat and Himachal Pradesh were indicative of a strong support for politics of good governance and development. Home Minister Rajnath Singh said the twin victory showed the recognition given by the people to Modi’s reforms. Shashi Tharoor said that the campaign by Rahul Gandhi had helped in Congress gaining strength in Gujarat.
The stock market have responded positively with BSE Sensex gaining 0.41% to 33,601.68 while Nifty rose 0.54% to 10,388.75.
Angel Broking in its daily update said 10410 is the trend deciding level for Nifty and any sustainable move beyond this may result in an extended rally.
Back to Populism
Meanwhile, the corporate world is eagerly watching the new developments and perhaps apprehensive of what directions the reforms may take in the next two years as more Assembly elections and Parliamentary elections are due in 2018 and 2019 respectively.
Associated Chamber of Commerce and Industry (ASSOCHAM) in a note observed that Corporate India has to factor in political realities weighing on economic decisions of the government , including in the forthcoming Budget , the last full-fledged of the NDA Government, ASSOCHAM has said, after an internal assessment.
“In the run-up to the 2019 Lok Sabha elections, states including Rajasthan, Madhya Pradesh, Chhatisgarh and Karnataka are due for polls in 2018. Inevitably, it would be the popular voters’ sentiment that would be factored by the Centre and the state governments in their policies. Any tough reforms, like flexibilities in labour laws may not go well with the popular sentiment and thus, India Inc’s expectations on this front should be muted”, said the chamber note.
However, an important take away from the current political-economic environment is that the Goods and Services Tax is expected to be further streamlined and rates further rationalised on the lower side. “The GST had not gone well with the traders, the major political force for the political parties and the issue remained in focus during Gujarat elections. Besides, the SMEs would also get a boost, starting from the Budget proposals. Their role in creating employment in a shorter span of time is being recognised and the job creation would remain a big concern for the government in the foreground to 2019 general elections “the chamber said.
The ASSOCHAM said, “Going forward to 2018 and 2019, we expect a major attention going to the rural landscape with several initiatives like support to farmers, rural and agri infrastructure. Thus, the Corporate India directly related to the farm economy should stand to gain. The tone would be set in the coming Budget”.
The factors to be particularly watched should be inflation, which would now be the top priority of the government in elections years. “In the trade off, growth may not get as important a place as inflation and thus, the interest rate scenario looks to be on the upside, rather than downward”.
Monsoons in 2018 would also be a crucial variable for the rural demand while the credit growth is still some time away, as banks and companies keep repairing their balance sheets.