Indian Election Outcome May Defy New Government’s Economic Team (Current Issue No. 2501 Full Ed.)

India will announce the results of its national elections on May 16, 2014, determining which party will be leading the new government. All eyes are now on two major parties, being the coalition-led Indian National Congress Party (INC/Congress) led by Rahul Gandhi, and the up-and-coming opposition Bharatiya Janata Party (BJP) led by Narendra Modi. Several polls suggest that the BJP may be leading in this election, although we at KResearch expect that both parties – whoever wins – will steer the country toward economic growth.

As before, economic issues remain thorny and require a lot of attention from the new government, because India's fragile economy has been under heavy pressure domestically and externally over recent years, thus resulting in lower growth. The government-to-be will have to deal with many unresolved problems, including inflation that has pushed up business and living costs, as well as twin deficits, being structurally unstable current account and fiscal deficit. The incoming administration's policies will bear watching, particularly those involving subsidies. With regard to Rupee forex volatility, decisive actions will be needed to restore investor confidence.

Nevertheless, we believe that India will be heading toward healthier performance eventually, thanks to a rebound in trade and investment there. Our projection for Indian economic growth is set at 5.0-5.5 percent over their 2014/2015 fiscal year (up from 4.5-4.7 percent expected for the current 2013/2014 fiscal year).