India: Modi's momentum: BJP poised for a third term victory on June 4
Metodi Tzanov
Helping finance professionals understand what is going on in Emerging and Frontier Markets
India is currently in the process of voting for its next government and prime minister, a critical political event that has entered its final phase. As the nation approaches the culmination of this electoral process, the consensus remains that the incumbent Bhartiya Janata Party (BJP) is poised to secure a third term in power with prime minister Narendra Modi at the helm. Despite a dip in voter turnout, which has injected a degree of unpredictability, the general expectation and our view is that the BJP will emerge victorious. The BJP alone is likely to secure close to 300-310 seats in a 545-seat Lok Sabha, giving it clear majority. Collectively, as part of its broader coalition, the BJP-led National Democratic Alliance will likely secure 340-250 seats. The BJP secured a substantial 37.7% vote share in the 2019 elections, and a similar performance is anticipated in 2024. It appears that despite coming together as part of the?I.N.D.I.A coalition(Congress led alliance of 26 opposition parties), the opposition parties will find it challenging to dent Modi's popularity.
Election Progress
The elections, conducted in seven phases, are nearing completion with six phases already concluded. The initial phases have seen a voter turnout that is 3-4 percentage points lower than in 2019, raising some concerns. Historically, lower voter turnout has not consistently impacted the incumbent's chances in India, and the BJP is likely banking on this trend continuing. The first exit polls are expected on June 1, with official results slated for June 4. Lower voter turnout in urban centers is the norm, whereas the heatwave that India is experiencing currently is expected to have kept voters in rural India at home as well. Other factors contributing to lower turnout include voter fatigue, disenchantment among urban voters due to inflation, and a perceived lack of viable alternatives.
These elections aim to elect the 543 members of the 18th Lok Sabha. Notably, this election is poised to be the largest-ever globally, surpassing even the significant 2019 Indian general election. Furthermore, it will be the longest-held general elections in India, spanning a total of 44 days (excluding the inaugural 1951-52 Indian general election). Approximately 960mn individuals, out of a total population of 1.4bn, are eligible to participate in these elections, making it a significant democratic exercise. Concurrently, legislative assembly elections in the states of Andhra Pradesh, Arunachal Pradesh, Odisha, and Sikkim will be held alongside the general election. Additionally, by-elections for 35 seats across 16 states will also take place during this period. We remind that India follows a parliamentary system of government, which means that the executive branch (the government) is derived from and accountable to the legislature (parliament). The Parliament of India consists of two houses: the Lok Sabha (House of the People; lower house) and the Rajya Sabha (Council of States; upper house).
Campaign Dynamics
The BJP's campaign has been marked by a focus on national security, economic reforms, and infrastructure development. Their slogan, "Abkibaar 400 paar" (This time we cross 400), reflects their ambitious target to secure over 400 seats. However, reduced voter turnout, particularly in urban areas, could hinder this goal. Meanwhile, the opposition's campaign has failed to gather substantial momentum given a lack of cohesive strategy. The opposition parties have promised a multitude of reforms including increasing reservation for minority communities, increasing the allocation towards the free food grain scheme and addressing inflation. Despite this, the opposition campaign appears dull.
Meanwhile, a primary determinant of the BJP's prospects in the upcoming elections is the enduring popularity of Prime Minister Narendra Modi. The election is expected to revolve more around Mr. Modi's performance and leadership rather than a referendum on the BJP as a political entity. His popularity has remained steadfast, even amid significant power consolidation, a more conformist media landscape, and diluted checks and balances within India's federal structure.
Another factor informing our view of a BJP victory is that the overall sentiment of the public. Ground reports highlight how in rural parts of the country the public is happy with the incumbent's work i.e. the BJP has a strong governance record. The successful implementation of welfare schemes such as Pradhan Mantri Awas Yojana (housing for all), Swachh Bharat (clean India), and Ujjwala Yojana (LPG connections for rural households) has appealed to large part of the electorate. There have been visible improvements in infrastructure such as roads, highways, and urban development projects. However, it is also true that some parts of the country have not seen such development, and this might hurt the BJP vote share in those areas. Uttar Pradesh, the largest state in India (in terms of seats in the parliament) is also ruled by the BJP at the state level. What this suggests is that the BJP is likely to secure the maximum number of seats in this state. A similar such assessment has been made for other larger states like Madhya Pradesh and Andhra Pradesh. Additionally, a robust organisational structure with active grassroots workers who mobilise voters effectively is expected to secure the BJP seats in states, which historically have not voted for the party. This includes a key state of Tamil Nadu with 39 seats to the parliament.
The BJP's economic track record is mixed. While inflationary pressures have affected the cost of living, there has been limited progress in formal employment generation. Nevertheless, India's robust growth trajectory and visible advancements in urban and rural infrastructure are likely to bolster support for the incumbent government. Welfare schemes introduced by the BJP, benefiting women, youth, farmers, and migrants, have garnered significant support. These schemes are expected to play a crucial role in the upcoming elections and may expand further in the next term.
Other factors that are supportive of the BJP's victory include
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Election Outcome
In our view, the probability of BJP-led NDA making the next government is close to 80%. There is only a small 20% chance of the opposition forming a government. However, the chances of BJP winning a clear majority on its own, without its NDA allies is lower at about 55%. Overall, the most likely scenario to play out in these elections is a BJP-led NDA government. The latest ground reports point to a BJP securing 275 seats minimum.
Opinion Polls
Opinion polls have Modi and the BJP in the lead across the country. The seats expected to be won by the NDA range between 335 to 399. The latest of these polls conducted earlier this month have the NDA winning 399 seats, just shy of the 400 target put out by the BJP campaign. In more detail the estimates of different opinion polls are listed below:
Implications for the Economy and Financial Markets
Irrespective of the election outcome, financial markets are expected to experience volatility throughout the voting phases and until the new government presents its budget for FY25. Historically, market reactions to Indian elections have been significant. The unexpected loss of the NDA in 2004 led to a steep drop in the Sensex and a weakening INR. Meanwhile, a stronger than expected UPA victory in 2009 boosted the Sensex and strengthened the INR. A BJP victory in 2024, particularly if they secure around 340 seats as part of the NDA, is expected to result in positive market reactions due to anticipated policy stability and reform continuity. The INR is likely to strengthen, and equities could maintain their bullish trajectory. A strong BJP majority would facilitate the passage of several key reforms:
India's betting market is also aligned with our view that a BJP majority government is expected. The market is also hoping for such a result as it ensures policy continuity. What this means is that the government focus will remain on building key infrastructure. In the first two terms, the BJP built roads. The upcoming term will focus on airports and ports to boost manufacturing in India. The Make in India campaign aimed at turning India into a manufacturing hub will sustain, as will the government's production linked schemes to provide benefits to companies willing to set up businesses in India. The government's focus on signing more FTAs, bilateral agreements to settle trade in INR, asset monetisation, agriculture reforms, renewable energy initiatives, smart city mission are expected to sustain over the third term.
Conclusion
As India approaches the final phase of its 2024 general elections, the expectation of a BJP victory remains strong despite lower voter turnout. The anticipated outcome is likely to bring about market stability, a stronger INR, and continued economic reforms. The BJP's focus on rural support, economic policies, and infrastructure development has positioned it favourably to secure a third term, promising continuity and further progress on key national issues. While the BJP itself is forecasting over 400 seats, this seems overly ambitious. A more realistic expectation is for the BJP to secure 300-310 seats, leading to a high-probability scenario of a clean majority win. The final results and subsequent market reactions will ultimately hinge on the electorate's verdict on June 4th.