>India Macro Flash (CITI)

Elections - Exit Polls Indicate a Fractured Verdict

■ Polling over - Results on Sat (16 May)...but exit polls indicate a hung parliament — Following the culmination of India’s month-long election process yesterday, exit polls by various media channels have projected a fractured verdict with a close race between the UPA and NDA coalition. While keeping in mind that exit polls had been proved wrong in India’s 2004 elections, the current arithmetic indicates (see table below) that with neither the UPA or NDA coalition likely to come close to the 272 seats necessary to form a government, the Third Front (including the Left Parties) could play a crucial role.

■ On-going game of political chess — Over the next two days, political leaders will be trying to get to as close to the magic number of 272. However, things are likely to change by the hour due to: (1) changing allies (e.g., while the Left walked out of the UPA govt over the nuclear deal, there is speculation that they could once again provide outside support to the Congress); (2) open-ended
alliances; and (3) regional parties wanting a bigger role.

■ The next step - Role of the President — According to the Indian constitution, the President appoints the Prime Minister; who is normally the leader of the party/alliance that gets the majority in the lower house. In the event of a hung parliament or a fractured verdict, the President would call upon the leader of the party/alliance most likely to command the support of the majority.

■ Macro implications — As mentioned in our previous notes, a coalition led by the Congress/BJP would be best outcome. A combination with the Left could put reforms on the back-burner while a non-Congress/BJP coalition would have more implications for stability than policy.

■ Citi hosting a conference call today with two of India's renowned political and economic experts, Rajdeep Sardesai, Editor-in-Chief of CNN-IBN, and Anil Padmanabhan, Deputy Managing Editor of Mint newspaper, the Indian partner of the Wall Street Journal, for their views on the expected outcome of the elections. Please contact your Citi representative for details.

To see full report: INDIA MACRO FLASH