Sweeping wins for India’s pro-business opposition party in state elections are being welcomed by investors as a sign that national polls next year will deliver a government capable of tackling the malaise in Asia’s third-largest economy.
Business leaders are openly cheering on the Bharatiya Janata Party (BJP). Several surveys show overwhelming business support for BJP’s prime ministerial candidate, Gujarat Chief Minister Narendra Modi, reflecting widespread frustration with the ruling Congress party-led government’s failure to end extravagant corruption and scythe through a thicket of bureaucratic red tape that has stifled investment.
India’s economy has slowed from an average of 8 percent growth over a decade to less than 5 percent in the last year, too slow to alleviate the poverty affecting hundreds of millions of people, or provide enough jobs for its swelling population.
Investors hope the BJP can do better, given an earlier incarnation as a government that opened markets.
They are especially banking on Modi’s reputation for promoting Gujarat, which he has led for 12 years, as an industrial haven.
India’s SENSEX stock index surged 1.6 percent on Sunday to a record high after official results confirmed that the BJP trounced Congress in four heartland states, including Delhi.
The rupee also strengthened to 60.84 against the US dollar at one point, its strongest position since August.
General elections are due by May. A BJP victory might also be welcomed abroad. South Korea’s POSCO has been trying to advance plans for a US$12 billion steel plant in Orissa State since 2007 and giant US retailer Wal-Mart Stores Inc recently dropped plans to open stores in India because of onerous local product-sourcing requirements.
Enthusiasm for the BJP has not been dimmed by recent moves at odds with its pro-business reputation.
The party led street demonstrations last year against opening up India’s huge yet underdeveloped retailing industry to foreign investment. A BJP lawmaker recently asked the Indian Supreme Court to block an Etihad Airways deal to buy a 24 percent stake in Indian carrier Jet Airways.
Even Modi’s government in Gujarat this year irked solar power companies by trying to cut their promised fees.
Before the party lost power in 2004, it had long been seen as India’s main business-friendly party compared with the left-leaning Congress. The BJP once championed the reforms it railed against recently and investors believe it will flip back to supporting them if it returns to office.
The Congress-led government last year eased restrictions on foreign investment in retail and aviation, hoping to revive growth. However, it also dismayed businesses by passing land rights and environmental protection laws that make it harder to obtain land for factories and mines.
The business community’s Modi fever may be wishful thinking, HDFC Bank chief economist Abheek Barua said.
India’s problems are too deeply ingrained to be solved by one man or one party, he said. Even if the BJP were to win a majority in parliament, it would likely be too small to avoid the gridlock that plagues Indian politics.
Replicating the red carpet experience for land acquisition and permits in India’s far-flung states would be even more difficult, Barua said.
“The business community has sort of rallied behind Modi,” he said. “Partly because of the attraction of Gujarat and partly because of disgust with the current government’s record.”