India’s stock market crashed on June 4 as it became clear that the BJP would not make it past the halfway mark alone and that this was going to be an NDA-led coalition with much more say for regional partners on the one hand, and a much stronger opposition on the other. Indian stocks saw their worst intraday fall in four years: foreign investors dumped close to $1.5 billion worth of Indian shares and domestic investors also sold over Rs.3,300 crore.
By the end of that tumultuous week, however, the market had recovered some ground. Key indices closed in the green and found some semblance of calm.
It bears asking: in 10 years of the Modi regime, is there even one policy change that was introduced to support the growth of the stock market? In real fact, the opposite was done. In 2018, the then Finance Minister, Arun Jaitley, reintroduced long-term capital gains tax on gains arising from the transfer of listed equity shares exceeding Rs.1 lakh at 10 per cent, without allowing any indexation benefit. Under the United Progressive Alliance (UPA), Finance Minister P. Chidambaram had allowed for any gains from the sale of equity shares or mutual funds held for more than a year not to be subject to any kind of tax whatsoever. Which one sounds like a better idea?
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A ramshackle coalition, remarked one market analyst, was a big concern for investors. Let us examine what coalitions have achieved for India in the past, through the lens of economic policy or tax decisions.
In July 1991, Prime Minister Narasimha Rao rolled out economic liberalisation, formally removing the licence raj. The H.D. Deve Gowda-led coalition government in 1997 introduced a “dream budget” with tax cuts for corporates, foreign firms, and personal taxpayers. At the most recent count, that dream budget propelled income tax collection growth from Rs.18,700 crore in 1997 to over Rs.2 lakh crore in 2013.
Previous NDA-led governments have seen a scale-up in rural infrastructure spend via the PM Gram Sadak Yojana, the Information Technology Act of 2000, and a focus on disinvestment. In 2006, most notably, the UPA introduced the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) which provides minimum employment to the rural poor. The Act has been the single most important lifeline for rural India through post-COVID economic distress. Clear, cogent, and equitable economic policy has emerged in times of coalition governments.
What is worth watching over the next few months is a distinct subset of the stock market that has come to be branded as “Modi stocks”. Capital markets and investment major CLSA has a list of over 50 “Modi stocks”. They range from public sector companies like ONGC, BPCL, and SBI to private firms like Reliance Industries, Adani Enterprises, and Adani Ports & SEZ. While these numbers surged on the back of exit poll indications, they have not fared as well after the results. In the final analysis, the truth lies in the fact that Indian markets are distinctly expensive: at current valuations they are 12 per cent higher than 10-year averages, and the froth will need to cool.
On broader reforms, what does the road ahead look like? In the past 10 years, the two major economic policies the Modi-led NDA government has rolled out are GST and the Insolvency and Bankruptcy Code, 2016. Both have not been above criticism on inherent structural flaws that need fixing. In May 2014, the Modi government promulgated an ordinance to amend the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act of 2013. The ordinance aimed to exempt some categories of projects from the “consent” clause provided under the 2013 law. Faced with widespread protests, the government allowed the ordinance to lapse. Three contentious farm laws were also rolled back.
What could priorities now look like for an incoming government? Number one, jobs. It is time for the government to address the deep unemployment challenge. Public sector employment cannot accommodate the surging numbers entering the job market, and levers will have to be put in place to stimulate both manufacturing and private sector employment.
Second, the incoming government has some breathing space fiscally. With a massive Rs.2.11 trillion-sized dividend from the RBI, there is space and capacity for a further reduction in fiscal deficit and more sustained and focussed welfare capex spending.
Third, for 2023-24, the government set itself a disinvestment target of Rs.51,000 crore, the lowest target in seven years. In real numbers, the Centre has not met the disinvestment target for 2022-23. Strategic sales are reportedly at a mature stage with companies like BEML, Shipping Corporation of India, and IDBI Bank. But the proof will be in the actual sale, as this government’s performance on disinvestment has been subpar. A more realistic approach will also be useful; LIC’s disinvestment left a bitter taste in the mouths of investors, with their investment taking a year and a half to turn positive after being priced uncomfortably high.
Fourth, in a cruel and deliberately obtuse decision, the Election Commission scheduled this year’s general election over a 40-day period of searing heat. At least 33 people, including election officials on duty, died of suspected heatstroke. Lay that reality down against this figure: by 2022, the number of forest, wildlife, coastal regulation zone, and environmental clearances the Modi government granted rose to a never-before-seen high of 12,496. Climate change impact across India is clear and present. The NDA would do well to heed the signs and walk the talk when it comes to building a sustainable future. Fifth, India was built ground up as a federal structure. Frequent spats around alleged discrimination by the Centre against non-BJP ruled States on financial matters saw cooperative federalism reach breaking point. The next Finance Minister will have to lead discussions with a lighter, more even-handed approach.
India needs jobs. The International Labour Organization’s India Employment Report 2024 found joblessness particularly high among India’s youth. Young Indians between the ages of 15 and 29 accounted for a whopping 83 per cent of all unemployed people in India. Worse still, employment is dominated by poor-quality jobs in the informal sector even as wages and earnings are stagnant or declining.
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There has been much criticism of welfare spending, often termed as “dole outs”. Over the last two terms of this government, the rise of top-end inequality has been stunning. Studies on the widening gap found that there was now more economic inequality in India than there was under British rule. Welfare scheme after welfare scheme has been rolled out under the Prime Minister’s name and credit. It is time for a clear-eyed audit. Whom has this benefited, how many still remain out of the purview of support, and why, despite this seeming largesse, does the country and a majority of its households remain so inequitable and so financially distressed?
Finally, accountability matters. A steep and steady erosion of faith in institutions that form the bulwark of the economy, from the judiciary to the Election Commission, from the market regulator to the Enforcement Directorate has led to deep suspicion and a lack of faith in the simple belief that rules work the same for everyone. This is corrosive for a democracy and counterproductive for economic progress. Your move now, Prime Minister.
Mitali Mukherjee is Director of the Journalist Programmes at the Reuters Institute for the Study of Journalism, University of Oxford. She is a political economy journalist with more than two decades of experience in TV, print and digital journalism. Mitali has co-founded two start-ups that focussed on civil society and financial literacy and her key areas of interest are gender and climate change.
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