5 key takeaways from state elections in India

5 key takeaways from state elections in India
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On December 8, 2013 citizens of India voted in state elections in five states: Delhi, Rajasthan, Chhattisgarh, Madhya Pradesh, and Mizoram. Here are 5 insights into what elections might mean.

After a few days the elections were called a resounding defeat for the ruling Indian National Congress party. In what was called a ‘thumping’ by one major international news outlet, the elections are seen as a harbinger ahead of the upcoming national elections in 2014.

With a GDP of $1.842 trillion and a population of over 1.2 billion people, elections in India have international consequences for investors and the world they inhabit. India has fractious and complicated politics that can often seem bewildering. With this in mind, here are five key takeaways from the recent state elections in India:

1. The mood in India is heavily anti-incumbent

India has long had endemic institutional corruption. While accurate statistics are difficult to find and are often unreliable, recent growth has been linked to increases in political cronyism and resource graft. Having held control for the last several election cycles, the Congress Party has been blamed for the slowed growth and currency issues of this years as well as what many Indians view as all too frequent corruption by their public officials.

High consumer inflation, notably shown in food prices that have risen 14.72 percent in a year, undoubtedly contributed to a difficulty for incumbents to seek re-election. Consumer price inflation in India during November was at a burdensome 11.24 percent.

2. State election results not a good indicator of 2014 national election

While many have been quick to call the state elections a victory for the dominant opposition party, the Bharatiya Janata Party (BJP), the results reveal a much more complex outlook. While the BJP won a crushing majority of the seats in each state assembly, four of the five states had particular factors that prevent ascribing the state elections as indicative of potential results in the national elections in 2014.

Fueled by anger towards corruption, a new party called the Aam Aadmi Party (AAP), emerged in Delhi. The AAP worked to siphon off votes and scored impressive returns, indicating not only dissatisfaction with the Congress Party, but a reluctance to completely embrace the often controversial BJP. Madhya Pradesh, which has long been favorable to the BJP and under the guidance of a more moderate BJP leader, has only further increased its seats in a state with low expectations for the Congress Party. Rajasthan has a long history of kicking out incumbents and in the state of Chhattisgarh, returns indicated that the BJP will only have an advantage of 49 seats to the 39 seats for the Congress Party. Taken in total, this is far from a conclusive indicator of potential performance nationally by the BJP going into 2014. 

3. Elections show generational change in political sentiment

The Congress Party is the party of the Nehru-Gandhi dynasty that has ruled India for much of its post-1947 history. Yet, for a new generation of Indian voters emboldened by a growing middle class and historic levels of growth, such history has limited appeal. This is not the first time in recent history that voters have indicated displeasure with the Congress Party, however, there is no denying that the party holds little sentimental appeal for many young Indians. With 65 percent of India’s voters age 26 or under, this is a considerable problem for Rahul Gandhi and other leaders of Congress.

The leader of the BJP, Narendra Modi has made a point of framing the upcoming national elections in terms of change, casting Gandhi and others as tired establishment figures. Gandhi himself has spoken of the need to change and retool the image of the Congress Party.

4. Election results are promising for investors in the short-term

The results of the elections were not unexpected, nor unanticipated despite post-election attempts by the BJP to spin the results and create increased momentum. The BJP is viewed as a more business-friendly party, with its message of increased economic growth and scaling back the welfare state, the markets reacted favorably ahead of the news of the elections. The rupee and bond prices rose considerably ahead of and after the election news. This indicates investor confidence with the results and perhaps with the prospect of a return to power by the BJP.

5. Expect increased volatility as national elections approach

While the markets reacted enthusiastically to the prospect of a return to power for the BJP, there is still reason for investors to move cautiously as national elections approach. Recent news has led some to speculate that the economy has turned a corner. Growth has pushed up from 4.4 to 4.8 percent in the last quarter, the deficit has dropped dramatically from 4.9 to 1.2 percent of GDP, and Raghuram Rajan installment at the Central Bank in September, have all elicited well-deserved confidence in the long term outlook for India’s economy and provided much needed reassurance to investors.

Yet, despite recent forecasts of 6, 7 and even 8 percent growth rates, there is a likelihood of increased market volatility. This can be expected with any major election, but will likely be exacerbated by several factors. Important questions surround BJP leaders’ ties to extremist groups, which may complicate relations with other countries. The history of the Congress Party attempting to spend on social programs as means of maintaining power, and the heated rhetoric that has often been used in an angry and anxious electorate, can all work to increase market volatility as national elections approach.

About Author

Sean Durns

Sean Durns worked as a research assistant to a former high ranking Pentagon official and the Director of National Security Strategies at a DC based think tank. His analysis has been referenced by a variety of media outlets including The Wall Street Journal, Roubini's EconoMonitor, OilPrice, and many more. He holds a M.Sc. in History of International Relations from the London School of Economics where he focused on US foreign policy, security studies, and energy security.