RECOVERY IN SIGHT

Economy may perk up right after polls

 

Sharp Rise Seen In Industrial Output In Six Months Post-Elections Last Three Times

 

ToI 28/4/09

 

Chennai: The search for the 15th Lok Sabha will end on May 16. It could also be a starting point for a sharp ramp-up in economic activity for the country, if historical patterns are anything to go by.

 

Economic activity, as measured by industrial production index, has increased immediately after 5 elections out of 7 polls since 1984, when the 8th Lok Sabha was constituted.

In fact, economic activity post-elections has risen consecutively for the last 3 elections held on 1998, 1999 and 2004. Looking at the industrial production (IP) data before elections and 6 months after elections show that on five occasions IP index rose by 20-80 basis points when either the BJP or the Congress were a part of the government, data from Goldman Sachs Global ECS Research shows.

 

For instance, after the BJPled NDA conceded defeat in May 13 2004, bringing Congress-led UPA to govern the country — IP index showed a marked 0.8% improvement 6 months post-elections from its level 6 months before the country went to polls.

 

The same pattern played out after the 13th Lok Sabha elections held in October 1999 (just after the the Kargil War), elections in 1998, elections in 1991 that led to stable 5-year government under P V Narasimha Rao and 1984 elections which were held soon after the assassination of Indira Gandhi.

 

“On each of these five occasions, a coalition perceived to be stable, has come to power … the lifting of the uncertainty that goes with an election exercise of this magnitude, would be a likely explanation for the improvement in activity. It appears that a government which is perceived to be stable, has a positive impact on (economic) activity,” Tushar Poddar of Goldman Sachs said.

 

The two elections i.e. 1989 and 1996 in which industrial production activity worsened six months post-elections were when neither of the two major national parties-the BJP or the Congress were a part of the ruling coalition. In the case of 1996 elections, IP actually went into negative-zone post-elections compared to pre-poll numbers.

 

Durability of the government which will be selected in 2009 would be important. Experts suggest that a government fearful of its durability, especially in such a worsening global environment, can introduce policies which can pump in money which translate into more immediate consumption kickers.

 

“This would contrast the more usual new government’s investment-oriented policies which raise India’s trajectory, but have a (longer) gestation period. Extra fiscal cost is likely to be Rs 23,000 crore if the Congress is elected & nearly Rs 58,000 crore for a BJP-led government, from their manifestos,” Nandan Chakraborty, head of research at Enam Securities, feels.

 

Sops such as huge quantities of rice/wheat at throwaway prices for poor families, lucrative rates for farm loans, scholarships for students and tax relief measures — as promised by both the BJP and the Congress — might push the Indian consumption story that much faster.

 

“A non-Congress, non-BJP coalition has more implications for stability rather than for policy while a combination with the Left could put a lot of things on the back-burner. A look at the manifestos of key political parties suggests that broadly the stances of BJP and Congress manifestos mirror each other on agri, education, infrastructure and employment,” Rohini Malkani, Citigroup India economist notes.