What Impact will India’s Election Results Have on its Business Environment?
Accounting for 17.5% of the world’s total population in 2013 and a member of the BRICs alongside Brazil, Russia and China, India is a key market for investors. The victory of the Bharatiya Janata party (BJP) in the May 2014 elections will have a pervasive impact on India’s business environment. Its retailing sector is likely to remain difficult for foreign entrants, yet corruption and political stability may be improved. The party have also pledged to prioritise economic growth.
India Corruption Perceptions Index Rankings: 2006-2013
Source: Euromonitor International from Transparency International
Note: The total number of countries in the rankings are as follows: 2006: 163, 2007-9: 180, 2010:178, 2011: 183, 2012: 176, 2013: 177.
- India is the world’s largest democracy, with 537 million votes cast in the 2014 election;
- In 2012 it ranked 179th out of 203 countries in the World Bank’s Political Stability and Absence of Violence index. This may improve under the new leadership of the BJP.
- India has one of the world’s biggest populations, accounting for 17.5% of the world’s total population in 2013. 537 million votes were cast in the 2014 election. It is also a member of the BRIC countries, which accounted for a combined 20.9% of total global GDP in 2013. This means that its election outcome will have a significant impact on the global economy;
- India’s perceived corruption levels have worsened in recent years. In the Corruption Perceptions Index 2013 its ranking was 94th out of 177 countries, down from 70th out of 163 countries in 2007 due to a series of corruption scandals under the ousted Congress Party. As part of its election manifesto, the BJP pledged to clear up bribery and corruption, so corruption levels may improve;
- The election of the BJP could trigger a rise in political instability in India, which it already suffers from. In 2012 it ranked 179th out of 203 countries in the World Bank’s Political Stability and Absence of Violence index. The BJP leader, Modi, has threatened that some immigrants could be repatriated, which could trigger unrest. Yet relations with its neighbour Pakistan could also improve: Pakistani diplomats have said publically that they would potentially be willing to meet with Modi for peace talks;
- Both business confidence and the stock markets appear to have been buoyed by the results, because of the sizeable majority taken by the BJP, which has now created certainty in India’s leadership. The rupee climbed against the dollar to 58.7 according to Reuters after the election results became clear, after falling to 62.3 in February 2014.
- Real GDP growth could be boosted by the results: the BJP promised to prioritise economic growth in their election manifesto. In 2013 it stood at 4.8%, down from 10.3% in 2010, and is predicted to rise to 5.6% in 2014;
India Real GDP Growth 2008-2014
Source: Euromonitor International from national statistics/Eurostat/OECD/UN/International Monetary Fund (IMF), International Financial Statistics (IFS)
Note: 2014 data is a forecast
- It remains to be seen if the BJP will conduct the reforms needed to India’s business environment. India ranks poorly in the Ease of Doing Business 2014, at 134th place out of 189 countries. Enforcing contracts and dealing with construction permits are areas it performs especially badly in, at 186th and 182nd place respectively. The election manifesto of the BJP however was silent on the issue of reforms to improve its performance in Doing Business;
- India’s FDI intensity dwindled to 1.3% of its total GDP in 2012, down from 3.6% in 2008. This could well increase, as the BJP has said it will allow foreign investment inflows, providing they will create employment and generate economic growth. Yet this investment is unlikely to be permitted to come from foreign retailers: the BJP stated in its manifesto that it was opposed to lifting India’s ban on multi-brand retail, which is part of the reason its FDI intensity rate is currently so poor.