NEW DELHI — The clear victory by Narendra Modi’s Bharatiya Janata Party in India’s elections is a clear signal that the country will now be open for business, industry analysts said, although international retailers fear they could face even more restrictions on foreign investment.
The BJP won the first majority by a single party in India in 30 years after pro-business party leader and prime ministerial candidate Modi vowed to focus on economic growth and government deregulation. Modi’s victory ends decades of rule by the more socialist-leaning Congress Party, the historic power center of the Gandhi family.
The hopes of the business community soared today, indicated by the stock market index, Sensex, which rose to its highest point ever, at 25,000. The index climbed consistently all week with the exit polls predicting a victory by the BJP and its allies, who have combined to form the National Democratic Alliance, or NDA. Deutsche Bank has upped its Sensex target to 28,000 by the end of 2014.
“Modi’s win is a truly historic moment,” said Christopher Wood, global strategist for emerging markets at investment house CLSA, who had referred to India as “not a great investment story” last year. Industralist Adi Godrej said that there would be “increased investments and higher consumption” with the BJP-led government coming to power.
“The BJP victory is likely to herald a revival in India’s economic fortunes, with the potential to boost Indian GDP growth back over 8 percent by 2017,” said Rajiv Biswas, Asia-Pacific chief economist at IHS Global Insight.
But while business executives are celebrating the change in regime on the one hand, on the other, retailers are reacting with trepidation.
International retailers and fashion brands have invested in India in recent years, but far from the extent they have in other emerging countries like China and Brazil, consistently citing issues such as cumbersome government regulations and lack of proper infrastructure as roadblocks. The BJP has been clearly against foreign direct investment in retail, and over the last two years there has been a growing concern that a BJP-led government would overturn the provision allowing global retailers into the Indian market.
Multibrand retail was only allowed in September 2012, and then with several preconditions. These included allowing only 49 percent ownership, a 30 percent local sourcing clause for companies and permission for each state to decide whether it would choose to allow multibrand retail.
Over the last year, the worst fears of global brands were confirmed as new governments in Delhi and the state of Rajasthan overturned the decision to allow it, with Delhi being one of the biggest markets for retail in the country.
Outgoing minister for commerce and industry Anand Sharma has tried to underscore the fact that “foreign investors need a reassurance on the stability and predictability of the foreign investment regime in India.”
The industry is hoping that “Modi-nomics” would shift to include more versatility as he comes to the central government and allow global retail to grow.
Ironically, a meeting on Thursday, a day before the election result, held by the authorizing government department, the Department of Industrial Policy and Promotion, with 36 important stakeholders in the arena including Amazon, eBay and Wal-Mart resulted in a renewed push for the opening of FDI in the e-commerce sector, and will be presented to the new government later this month.
The BJP alone won 285 out of 543 seats in Parliament and with other parties in the NDA controls 335 seats overall, giving the alliance a clear majority and defeating a coalition government that had been wracked by political factions and infighting. The ruling United Progressive Alliance government led by the Congress Party and Manmohan Singh won only 59 seats.
It was an expression of voters’ displeasure, with issues like the economic slowdown, corruption and a “policy paralysis” being cited as a national shame after the high growth that drove the Indian economy from the late Nineties, making it an attractive destination for global brands and business.
Analysts said the fall of the Congress Party and Singh, who has been prime minister for the last decade, stemmed from perceptions he was a figurehead dictated to by former prime minister Rajiv Gandhi’s widow, Italian-born Sonia Gandhi. Fielding her son Rahul Gandhi as the primary Congress frontrunner also proved to be an error; he was perceived as weak and inexperienced.
Meanwhile, Modi’s clear and consistent campaign brought with it the promise of change and integrity.
“Yes, I am proud I sold tea… I never sold the nation,” Modi said in an earlier tweet, responding to political jibes about his origins, which were humble, and from which his meteoric rise has given much hope to small entrepreneurs. Modi’s party has echoed the line.
“We want to give the signal that there is no red tape, but a red carpet for investors,” said Arun Jaitley, who is widely expected to be the next finance minister and, despite losing in the electoral vote on Friday, keeps his seat as a member of the upper house of parliament.
Modi also has strong economic backing. Columbia University professor and economist Jagdish Bhagwati has made his admiration for “Modi-nomics” clear, and is rumored to be a potential candidate for chief economist or economic adviser in the new regime.
The election also showed the power of democracy is intact in India, which many business leaders consider a prerequisite for global business. India’s credentials as a democracy were clear — with 830 million people eligible to vote; 563 million voted — a 66 percent voter turnout, the largest ever during any election.
Modi is not without his critics — he has been described as “fascist,” “a religious zealot” and denied a visa to travel to the U.S. after the 2002 riots in Gujarat left his government accused of inaction.
His electoral mandate appears to have diffused these issues for the moment. And economics may well answer for the rest. On Friday, the rupee reached a 10-month high at 58.45 to a dollar. Foreign brands have suffered a dramatic drop in sales over the last year with the declining purchasing power of the rupee, which has fallen steeply against the dollar since early 2013.
However, it is clear that Modi, who is expected to be sworn in as early as Wednesday, inherits no easy task — a country divided by its geography and political factions, a democracy where agreement is key and the fact that the economics may be far more difficult to implement than to talk about.