Presenters

ATTENDEES

Deepa Kumar
Head of Asia-Pacific Country Risk

Kristen Hallam

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Presentation

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Kristen Hallam

Hello. I'm Kristen Hallam, Lead Content Strategist for Global Intelligence and Analytics at S&P Global Market Intelligence, and host of the podcast. In this episode, we're analyzing the recent election results in India, the world's largest democracy, and the potential impact on the country's business environment and on the broader geopolitical landscape. Joining me for this discussion is Deepa Kumar, Head of Country Risk for the Asia Pacific region. Welcome back to the podcast, Deepa.

Deepa Kumar

Thank you, Kristen. Looking forward to the discussion today.

Kristen Hallam

Deepa, let's start by quickly recapping the results of the election for our listeners.

Deepa Kumar

Counting from India's general elections concluded on the 4th of June, the results showed that the Bharatiya Janata Party, which is Prime Minister Modi's party, secured 240 seats in the lower parliamentary house called the Lok Sabha. Now the simple majority mark in India is low parliamentary house is 272 seats, which means the BJP's tally is about 32 seats short. That has resulted in the BJP having to come to power with its coalition alliance called the National Democratic Alliance. And that takes their seat representation to 292 seats at the time of recording.

This means the BJP will rely on coalition support to pass future legislation and all policy initiatives that it needs to take in parliament. What is also interesting in the results is the tally of the opposition alliance. They call it Indian National Developmental Inclusive Alliance short for INDIA. And their tally is at about 232 seats, all of them combined with the main opposition Congress party at 99 seats, which is its best showing in the last 2 or 3 elections in India. So it's effectively a split parliament where we have a coalition government in power, and that's the basis of what we're going to look at in terms of government stability and policy stability for the next term.

Question and Answer

Kristen Hallam

Interesting, interesting. And I know we'll get deeper into that in this episode. But first, I wanted to ask you, what were the key issues driving voters in this election?

Deepa Kumar

It's a very large country. And sometimes when I say this, it almost sounds like I'm speaking of Truism about India, but it's not. The reason it's an important caveat is because it's a multicultural, diverse, geographically vast spread society. So sometimes issues which are resonant in one part of the country and drive voter choices in one part of the country don't necessarily hold true in another part of the country.

What has been interesting to see from the vote share and seat share data that we've analyzed so far, which is not a lot is that there has been a spread of issues across the country and results look quite different state by state. Having said that, there are a few undercurrent, there are a few underlying themes that had emerged in this election.

I would say the state of the Indian economy, both its bright spots where things are looking very comfortable and somewhere there is opportunity and room for improvement, they have both played into factors. One of them being India is very strong on GDP growth outlook. The other being India's inflation outlook.

One is on its way up, the other is sort of moderating. But yes, they have been factors. And other has been employment, the availability of employment, the prospects for it, the promise of it, again, on the side of it that looks good. And the last, which is in our assessment and even more difficult to capture in voter sentiment, I would say, is foreign policy posturing of the previous government. So the outgoing government.

Is the kind of positioning that India has developed for itself on the global stage and what that has done to the identity of a person who's Indian or a person who's evaluating the government and of the BJP while casting their votes. So I'd say 4 issues, primarily the state of the economy, both between the GDP growth and the inflation, the third being employment and the last being the foreign policy posturing.

Kristen Hallam

How will these themes that you just talked about influence the policy priorities for the new government?

Deepa Kumar

I think what the outcome, especially, right, that we're looking at a parliament, which is not necessarily swung heavily to one side or the other is saying that these issues at some level, have had a lot of impact on voters and because they have impacted voter choices as we're also seeing in post-election data is likely to receive a higher priority in the ordering of how a new government chooses to do things once it's coming to power.

So I would think addressing inflation, addressing employment issues are going to be a couple of those priorities of a new Indian government and something that they'd like to get started on very quickly. I know we'll be speaking on the 100-day program a little later. And the other bit is the foreign policy posturing. Again, something that we will delve on a little later. But I do think the assertiveness, the tenor with which the Indian government conducted foreign policy of its previous term is also going to receive high priority again in the new government's term because of the positive returns they have seen in the elections that this would have had on the voter's mindset.

But yes, I think the other sort of tangential factor, which good or bad always affects Indian policy is the outlook for the Indian monsoon once it starts from somewhere in June, July and ends in September, a less-than-average monsoon last year did have its impact on all of these numbers and all of these factors and a good monsoon or not a good monsoon this year, we'll have to see how it goes, will also influence policy priorities for this new administration.

Kristen Hallam

Yes. We can't forget about how the weather literally can impact so many of these factors similarly. So what does a coalition government mean for policy continuity? And where are we likely to see continuity? You sort of hinted in your comments already that foreign policy is likely to be one of those areas. And then where are we likely to see change?

Deepa Kumar

I think to take a step back, one of the problem questions that we've looked at is what does the coalition government mean for India in general. A lot of Indian reforms, some of the bigger reforms, including in economic policy, in industrial policy, in social welfare schemes, they have come through during previous coalition governments so in the 90s, in the 2000s. So it's one thing to top it off, the upshot here is that the coalition government is not necessarily a risk negative for policy outlook, economic outlook for India. Of course, each coalition government is different. So it depends on how this government will continue its policies.

What we've seen, especially from the cabinet of ministers that Prime Minister Modi announced between 9th June and 11th June is the communication is strongly in favor of policy continuity. Several ministers have been repeated in the Council of Ministers and not just been repeated by their presence, but also received the same portfolio again.

So for instance, the 4 most important portfolios, which constitute the Cabinet Committee on Security, which is home affairs, external affairs, finance and defense. They are the same ministers who are continuing from the previous term. So it is definitely the governments intent to communicate that even though the parliamentary composition moves different, you can expect policy continuity, both for domestic and international stakeholders.

Having said that, a coalition government does have its own rhythm, they do have partners that they have to work with. It is still a fairly small coalition government in that the BJP does have a significant representation of 240 seats. Previous coalition governments in India have sometimes seen the largest party have as low as 180, 185 seats.

So it's still a fairly single party led coalition government, but the delta of the seats where we are seeing some state-level political parties have representation does mean that we are going to see a lot more cooperation with states, especially the states who are represented now in the coalition government. So Andhra Pradesh, Bihar, Maharashtra, some of these states, they are going to become important in terms of investment allocation, in terms of promoting policies that take place in these states.

And of course, in terms of how -- when there are differences between these coalition partners and the main party, which is the BJP, what takes a backseat. So where are we likely to see change? Actually, more than change, we are likely to see a deprioritization of some of the administrative and social religious policies. There are some inherent differences between the political parties on that front. But the economic and industrial policies, especially the reform agenda, there is broad cross-party support for that kind of reform agenda to go forward. So even if at a more consensus-driven pace, it's likely to go forward rather than stall.

Kristen Hallam

Thank you for walking us through all of that. Could you elaborate a little bit on the potential impact of these elections on India's geopolitical objectives and regional challenges? As I recall from previous discussions with you, you have kind of like a concentric circle way of thinking about this. So I was wondering if you could remind our listeners of that. I love that.

Deepa Kumar

Yes, absolutely. And I think to segue back to something that I was saying earlier, seeing as the kind of resonance that Prime Minister Modi's previous government seems to have had with the common public, the local commentariat on foreign policy posturing. That is one area that is in the positives. If the government had a report card kind of section, it is in the positive. So we are expected to see strong continuity in the geopolitical objectives and India addressing of regional challenges and opportunities.

To remind our listeners, the concentric circles is basically a multi-circle approach where if you think of India in the middle, its first priority is always its first circle, which is his neighborhood, which was also evidenced by the guests who were invited to Prime Minister Modi's inauguration on the 9th of June. They were leaders from India's neighborhood countries, including the Maldives, Sri Lanka, Bangladesh, Nepal, Bhutan, including the Seychelles, basically the Indian Ocean region.

The second layer is where India is looking immediately West and immediately East, which is the next geographical parameter, which is all the countries in Asia to India's East right out to Japan, Australia, ASEAN, and immediately to India's West, which is the Middle East and North Africa region as we identified and the Sub-Saharan Africa region. Of course, it also includes some strategic partners for India like U.S., like Russia, although they are not within the same regional or geographical bandwidth. And the third is rest of the world. All the other countries that India then looks at its relationships with.

I would think the most important pillar of India's geopolitical objective, and this term is going to be how they try and realize an ambition that the Indian government has for India to become a leader of sorts of the emerging economies, so especially that Circle 1 and Circle 2 and not just be a leader for the emerging economies in and of themselves or like [ as I will do ], but to be a bridge of this group with the advanced economies like U.S. or with Russia or with other countries in the European Union, like France and Germany.

So that's the kind of role and given that there seems to be high levels of domestic support, there seems to be some level of cross-party support. We don't see too much opposition challenges of foreign policy objectives. It would be something that, to use a cricket reference, in the Indian government plays on the front foot for the rest of its new term.

Kristen Hallam

So Deepa, do you expect any realignments between India and other countries such as of the BRICS countries or the U.S. as a result of the election?

Deepa Kumar

We expect broad policy continuity at least from India's POV working with these countries, like I was saying BRICS is an absolutely important forum to India because it is one of those many forums where India gets to express this objective of wanting to be the leader of emerging markets and also being kind of a bridge player.

Similarly, with the U.S., with France and with Germany, what is risk positive is, especially in the commentary. And we do distinguish very importantly between the commentary and the leadership of different countries is the commentary out of external countries and the comments that were there about the nature of Indian democracy or concerns about Indian democracy.

The election result is likely to be risk positive in bolstering those partnerships and ensuring that there is a lot more space to work through where alignments are facilitated. So in that sense, we would think that we don't see any realignment in a risk negatively, if at all, they are more risk positive realignments.

Kristen Hallam

So what indicators will you be watching in the first 100 days of this coalition government?

Deepa Kumar

Definitely, in terms of what are the issues they prioritize and what does the first budget of the government, which will be announced in July 2024, tell us about are they reprioritizing social welfare schemes? Are they doubling down on industrial policies such as production-linked incentive schemes? How are they planning to pass reforms such as land acquisition and labor reform, which is difficult to pass in a coalition parliament in that sense? So these are some of the bigger policies that we'd be looking at.

I think at this point, it's important to caveat that it is a large government. There are 72 ministers who have been sworn in. So there is a lot of capacity for this government to multitask over the next few weeks. So besides the 2 or 3 things that I've highlighted a lot more action can be expected from the policy circles on Delhi over the next few weeks. But I do imagine and especially seeing the Prime Minister Modi's first task in office was to take care of a pharma scheme. I would imagine that a lot more is done.

Kristen Hallam

72 ministers, you said that definitely sounds worthy of the world's largest democracy.

Deepa Kumar

When Prime Minister Modi came to power for a second time in 2019. He started with a cabinet of 54 ministers. That has been expanded to 72 ministers. 11 of them are from political parties outside the BJP so where coalition partners have been accommodated, their largest representation so far in India. So the size of the cabinet itself speaks to new coalition dynamics in India.

Kristen Hallam

Well, we're almost out of time. I could ask you many more questions about this, but any final thoughts for our listeners as we wrap up, Deepa, any particular takeaways for businesses that you want to highlight?

Deepa Kumar

I think one that is important to highlight and especially for some of our clients or some of our listeners who are interested in the Indian market is the Indian political calendar keeps sticking. Yes, this is the biggest electoral event in India because it is related to parliament, but we have at least 3 major state elections later this year, including in Maharashtra, including in Jharkhand.

So we'd have to see the outcomes of some of these elections as well, how state level dynamics start affecting national level dynamics and vice versa. And what that means for changes in state-level policies, which either align with the central government or to go different to the central government.

So the final thought that I would say is India's electoral calendar for the year is actually not yet over. And what happens in October, November will continue to impact the operational environment in India, in the particular state and the nature of the coalition government that is now there in New Delhi. So I hope to speak to you again about this topic in November or December, Kristen.

Kristen Hallam

All right. Well, I'll mark my calendar, and I hope our listeners do as well. Thank you, Deepa, so much for sharing your insights with us today on India's election results. That wraps up our episode. Please subscribe to the podcast, so you don't miss our episodes on other key elections, including South Africa and the European Union. Until then, stay curious and stay informed.

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