India’s elections: will Modi ‘giveaways’ woo voters?

Narendra Modi, India’s prime minister, on Friday starts a five-day, 10-state touras he shifts into full campaign mode ahead of this year’s general elections.

Once seen as a shoo-in for a second term, Mr Modi is facing a tougher-than-expected contest. Amid a growing feeling among voters that has failed to deliver on the high expectations he raised, the government is taking steps to stimulate India’s economy in the hope of generating a “feelgood factor” before voters go to the polls in April or May.

What are Modi’s election prospects?

A year ago, Mr Modi’s re-election had an aura of inevitability — but that has faded in the face of a resurgence of the opposition Congress party. In December, Congress unexpectedly won state elections in three traditional strongholds of Mr Modi’s Bharatiya Janata Party, a warning sign the prime minister’s popularity could be waning. 

While opinion polls in India are often inaccurate, recent surveys have predicted that the BJP will not repeat its strong 2014 performanceand could fall short of a single-party majority in this year’s elections. . 

How has the economy fared in his first term? 

India is the world’s fastest-growing large economy, but economists have questioned the credibility of its official statistics. Last week, New Delhi sharply increased its GDP growth estimates for the past two financial years. It has now pegged growth at 8.2 per cent — up from the previous 7.1 per cent — for the year ending March 2017, and at 7.2 per cent — up from 6.7 per cent — for the year ending March 2018. 

As a result of these changes, Soumya Kanti Ghosh, chief economist at State Bank of India, said this year’s growth would be far lower than expected, at 5.9 per cent, suggesting India has experienced a significant economic slowdown in the final year of Mr Modi’s term. 

How is he trying to boost sentiment? 

The government is offering giveaways to rural voters and the urban middle class. From April 1, New Delhi will spend $10bn a year to provide income support of Rs6,000 ($84) annually to 123m farmers with less than two hectares of land. New Delhi will spend another $2.8bn to make a first round of payments before the current financial year ends on March 31, ensuring the farmers receive two payments of Rs2,000 each before going to the polls. 

Mr Modi is also wooing India’s middle class with tax breaks at a cost to the government of $2.6bn. In the interim budget unveiled on February 1, he doubled the minimum threshold for paying income tax to Rs500,000 a year from the previous Rs250,000.and introduced tax breaks for property transactions.

What about monetary policy? 

In December, mounting tension between Mr Modi’s government and the Reserve Bank of India, the central bank, over macroeconomic and financial sector management led to the resignation of RBI governor Urjit Patel. Among the many differences was New Delhi’s belief that monetary policy was too tight, damping growth. 

This week, the RBI’s monetary policy committee, led by new RBI governor Shaktikanta Das, cut its benchmark interest rate by 25 basis points to 6.25 per cent and changed its monetary policy stance to “neutral” from its previous stance of “calibrated tightening”. 

It also announced regulatory changes intended to encourage banks to lend more to well-rated shadow banks — or non-bank financial companies, as they are technically called — to enhance the flow of credit into the economy. 

Will these measures help in time for the polls? 

Cash transfers to farmers will see a significant sum pumped into the rural economy, which will boost consumption. Consumer goods companies are likely to benefit, although it is unclear whether the move will be sufficient to placate farmers’ unhappiness at the low prices they receive. 

Tax breaks for the urban middle class will boost sentiment and reinforce loyalty among a constituency that is traditionally one of Mr Modi’s strongest supporters. This week’s rate cut will please industry groups, which have been pushing for easier credit, but economists say commercial banks may be slow to pass the reduction on to borrowers. 

But economists have expressed concern that the expansionary budget could crowd out private investment. Many believe the budget’s fiscal deficit projections are overly optimistic, and likely fiscal slippage could contribute to future inflationary pressure. 

India’s estimated 900m voters will give their verdict in the next few months.




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