Indians in UAE counting on turnaround after BJP victory

High hopes that the election of Narendra Modi signals the dawn of a bright new era.

Indian business chiefs in the UAE are counting on Narendra Modi's landslide electoral victory to signal a turning point for the country's economy.

The Hindu nationalist Bharatiya Janata Party (BJP) and its prime minister-elect, Mr Modi, built their election campaign around the promise of a much-needed economic revival. In his victory speech, Mr Modi, pledged “to take India forward”. Stock markets rallied on Friday as the extent of the win became clear. The rupee rose to an 11-month high against the dollar.

“I sincerely hope that the new government will show zero tolerance to corruption, assure inclusive growth of the poorer sections of the society who have been marginalised without access to proper food, healthcare or housing,” said Dr Azad Moopen, chairman of Aster DM Healthcare, a Dubai-based medical group.

With the BJP winning a parliamentary majority, the new government is expected to be able to implement reforms more easily than it would if it had to govern with coalition partners.

“The elections have delivered a clear mandate for governance and growth, which should be leveraged for decisive action that will rebuild confidence in the economy,” said Chanda Kochhar, the managing director and chief executive of ICICI Bank.

India has grappled with slowing economic growth and soaring inflation. Its economy slowed to levels below 5 per cent in the past financial year, well below the 8 per cent that the country needs to support and create jobs for its population of more than 1.2 billion.

“The immediate priorities would be to resolve issues in existing projects, clear pending receivables to the corporate sector from government agencies, resolve the retrospective taxation issue and bring clarity around tax laws, begin the implementation of GST [goods and service tax], and take steps to contain inflation,” said Ms Kochhar. “I am confident that the new government will take quick and effective steps in these areas, which will form the foundation for India getting back on to a high growth path.”

The Congress party, which had been in power for the past decade, has been mired in corruption scandals and blamed for not doing enough to boost the country’s economy and control inflation.

Karvy Capital, an asset management and investment advisory firm based in Mumbai, is predicting that the Sensex could reach 38,500 by March 2017.

“While FII [foreign institutional investor] investments may pick up in a hurry, the longer term investors through the FDI [foreign direct investment] route will want to wait and watch if the new government manages to revive growth,” said Swapnil Pawar, the chief investment officer of Karvy Capital.

Mr Modi is widely perceived as business-friendly, partly because of the strong economic growth and favourable investment climate Gujarat has enjoyed in recent years under his tenure as chief minister of the state.

BR Shetty, the chairman of UAE Exchange, a remittances firm headquartered in Abu Dhabi, said he expected the new government to boost investor confidence and foreign direct investment into India. “A strong government at the centre is certainly the need of the hour,” he said. “I would expect the new government to address the issues India faces including boosting economic growth, tackling corruption and fostering inclusive development.”

HSBC sounded a note of caution, explaining that change would take time and an “economic recovery is likely to be protracted”. It maintained its growth forecast of 5.3 per cent for the current financial year and its year-end prediction of 62 rupees to the US dollar.

“There is still some uncertainty about longer-term policies of the new government and whether the improvement of the Indian rupee’s external balances can be sustained,” HSBC said.

“Initially, government bond yields and swaps may drop further in anticipation of foreign inflows and additional dollar liquidity. This is likely to peter out as the rates outlook is still constrained by the prospect of a revision in government bond issuance in the final budget due in July and the possible additional monetary tightening by the Reserve Bank of India.”

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