>INDIA MARKET STRATEGY: UTTAR PRADESH ELECTION RESULTS 2012: WHAT NEXT?

What’s New? The Congress has won just one of the five state elections. It is also not in a position to play a role in government formation in Uttar Pradesh – something the market widely hoped for as a key trigger for policy action at the Center. What does this mean for the market? Here are our key conclusions:


The continuing structural change of Indian politics: There has been a subtle change in Indian politics over the past five years. Throughout the 1990s and the first part of the previous decade, being an incumbent government seemed to be almost a guarantee of losing elections. However, since end-2007, 2 out of 3 incumbent governments - which are arguably those that have delivered a development agenda - have won elections. The other change of the past five years is that the electorate has delivered absolute majority for several newly elected governments which allows the incoming government to execute its agenda without the stress of engaging in coalition politics. This theme recurs in the ongoing state elections with clear mandates in four out of five states though two out of the five incumbents did lose (possibly a reflection of poor performance).


Policy reform – is the glass half full or half empty? The immediate consensus reaction is that these results will trigger a wave of populism from the Congress government at the center. However, that would be a hasty conclusion given the country’s fiscal balance and that general elections are another 24 months away. In fact, we think that these results could trigger a concerted effort to consolidate the fiscal deficit and raise growth through development so that social spending becomes more viable in 2013 ahead of the 2014 general elections. Of course, there is a busy state election calendar but it is unlikely that the Congress may spend resources at the center to win these elections – it is not effective, in our view. For one, most of these state elections are likely only at the end of 2013. Two, state election results have a different dynamic – the political agendas are local and the constituencies are smaller and their results cannot be extrapolated to the center.


To read full report: MARKET STRATEGY
RISH TRADER