Elections Begin In India

April 16, 2014

India’s nine-phase elections have begun. The mood in the country is strongly in favor of change, and the majority of opinion polls place the main opposition, the Bharatiya Janata Party (BJP), ahead of the Indian National Congress (INC). A coalition government is likely to be formed, prompting the BJP and INC to seek alliances with regional parties and independent candidates. The BJP and its prime ministerial candidate, Narendra Modi, are widely seen to be more pro-business than the Congress, so the market favors a National Democratic Alliance (NDA) government to bring greater economic stability and business confidence within a year of elections.

Who is in the lead?

Strong anti-incumbency sentiment;

BJP favored over INC

Support for the incumbents has decreased because of runaway inflation, repeated corruption scandals and economic slowdown in the last three years. Sensing a defeat in the polls, many Congress members and allies have left the party.

Several political analysts and opinion polls have projected that the BJP, led by PM candidate Narendra Modi, will have the best chance of forming the next government. According to the Pew Survey, Indians prefer the BJP to the INC by more than three to one.

Will they be able to form a strong coalition?

A fractured mandate is likely

Importance of a strong coalition

The BJP is unlikely to win a majority in the Lok Sabha (Lower House) and will need to form a coalition. Possibilities of a ‘sweep’, however, cannot be ruled out.

While the BJP is riding on a wave of popularity, the INC has a strong infrastructure of support in place. Several important regional parties have not declared alliances yet, but BJP has successfully set up pre-poll alliances in five states. The cumulative effect of these alliances will be of great importance for a strong NDA government.

The strength of the economy and the extent to which the Centre can push reform will be determined by the strength of the coalition and the ability of the ruling party to get the consensus of states and coalition partners.

Which regional parties will be influential?

Powerful regional parties

The Lower House of Parliament has 543 seats, making 272 the magic number for forming a government. Following are the key regional parties that could help to form the ruling coalition:

State	No. of Seats	Major Parties
Uttar Pradesh	80	Samajwadi Party’s Mulayam Singh Yadav, who has prime ministerial ambitions, has joined the Third Front. Bahujan Samaj Party’s Mayawati has widespread support from Scheduled Castes across the country, which can translate into valuable votes.
Maharashtra	48	INC and BJP have strong historic alliances with Nationalist Congress Party and Shiv Sena respectively. Opinion polls predict a BJP victory, but the party’s popularity has been dented by the Aam Aadmi Party’s campaign.
West Bengal	42	Mamata Banerjee’s Trinamool Congress is positioning itself as a prominent regional party at the centre and has fielded candidates in fourteen states. It has not allied with either of the two major parties.
Bihar	40	Congress has tied up with Rashtriya Janta Dal, while BJP has tied up with Lok Janshakti Party and smaller parties/individual caste leaders.
Tamil Nadu	39	DMK and AIADMK are the two major regional parties. Both have stayed away from an alliance with BJP or INC so far. BJP though has forged a multi-party alliance with five parties.
Andhra Pradesh	42	The State has been divided into Telangana and Seemandhra. BJP formed an alliance with Chandrababu Naidu’s Telugu Desam Party and Jana Sena. INC was spurned by the Telangana Rashtra Samiti, which is expected to sweep the polls in Telangana. YSR Congress, a Congress break-way group, is expected to perform well in Seemandhra.
Odisha	21	The Biju Janta Dal, headed by Naveen Patnaik, was part of the NDA till 2009, but he has not yet declared who it plans to go with after the election. He is expected to win between 15-18 seats in his state.
New Delhi	07	In all likelihood, the Aam Aadmi Party will cut down BJP seats, making government formation a challenging task for Narendra Modi. It poses a similar threat to the INC.
Karnataka	28	The return of Yeddyurappa’s Karnataka Janata Party and Sriramulu’s BSR Congress has given BJP a boost. The combined vote share of the three parties exceeds 30 percent.

Who would fill the key positions in the new government?

Possible members of Modi’s Cabinet

News sources suggest that ministerial positions in the BJP-led government will be filled by the following candidates:

Position	Candidate
Finance Minister	Arun Jaitley, leader of the Opposition in Rajya Sabha; former Minister of Commerce and Minister of Law.
External Affairs Minister	Sushma Swaraj, leader of the Opposition in Lok Sabha; former Chief Minister of Delhi; Member of Parliament; Member of Legislative Assembly.
Defense Minister	Rajnath Singh, BJP President; former Cabinet Minister; former Chief Minister of Uttar Pradesh.
Home Minister	Manohar Parrikar, current Chief Minister of Goa
Commerce Minister	Arun Shourie, World Bank economist; Magsaysay awardee
Law Minister	Ravi Shankar Prasad, Deputy Leader of Opposition in Rajya Sabha; former Minister of State for Coal, Law, and Information & Broadcasting
Urban Development Minister	Nitin Gadkari, former BJP President; Maharasthra Public Works Department Minister
Agriculture Minister	Sushil Modi; former Deputy Chief Minister & Finance Minister of Bihar; Chair of the Group of Ministers for Implementation of Goods and Service Tax.
Civil Aviation Minister	Rajiv Pratap Rudy, BJP General Secretary; former Minister of Commerce, and Civil Aviation

How business-friendly is the new government going to be?

Hopes for growth and stability pinned on Modi

Likely reforms

The market is strongly in favor of Narendra Modi who is widely touted for his Gujarat development model. Bringing back a high-growth economy has been a pillar of Modi’s campaign.

Over the past two months, a stabilizing INR, normalizing CAD, easing CPI inflation, continuing fiscal discipline and lower probability of a rate hike have created a platform for an improving economic environment that Modi can capitalize on.

Modi is seen as a powerful Prime Ministerial candidate who will be able to expedite many of the stalled infrastructure and manufacturing sector projects and change labor laws substantially by devolving power to state governments.

Capital markets have started responding favorably to the prospects of a change of leadership. According to analysts, big investments are waiting on the sidelines for a market-friendly and pro-growth government to help revive flagging growth.

BJP has proposed to raise the cap on foreign ownership of Indian defense industry enterprises to 46 percent from the current 26 percent. BJP will also encourage joint ventures.

FDI in multi-brand retail hangs in the balance. BJP has, in its manifesto, declared that it is against allowing FDI in retail because a large part of its voter-base is comprised of small and medium traders.

Arun Jaitley, touted to be NDA’s Finance Minister candidate, has indicated that he may be open to 49% FDI in insurance.

INC and the BJP are in favor of Goods and Services Tax (GST). GST will help redistribute tax equitably between manufacturing and services and will reduce direct costs and cost of capital inputs.

In INC’s manifesto, it has promised to improve the country’s “Ease of Doing Business” ranking from 134 to 75 within five years; restore real GDP growth to above 8 percent within the next three years; achieve 10 percent growth in the manufacturing sector; and reduce the fiscal deficit to 3 percent of GDP by FY17, amongst other reforms.

INC has promised to make healthcare a national priority by enacting a right to health law, while the BJP has promised to provide health insurance to all families below poverty line.