NDA Govt to Opt for Some Populist Policy Measures to Address Rural Stress

While the new government at the Centre will continue with the broad-thrust on capex and investment-led growth, the agenda going forward could also include measures for reviving consumption at the bottom-of-the-pyramid, some relief in taxation measures, and indeed the rationalisation in the Goods & Services Tax (GST) structure.

Hyderabad: Despite the reduced majority at the 2024 Lok Sabha elections, the policy agenda of Modi 2.0 (investment-led growth, capex, infrastructure creation, manufacturing) is expected to continue, although with some tweaks. The NDA coalition government at the Centre is expected to opt for some populist measures to address rural stress and lift sentiments at the margin, given the nature of the verdict.

While the broad thrust on capex and investment-led growth will continue, the agenda going forward could also include measures for reviving consumption at the bottom-of-the-pyramid, some relief in taxation measures, and indeed the rationalization in the Goods & Services Tax (GST) structure.

Considering that the NDA forms the government, we believe it will pursue a balanced economic growth model which could mean equal emphasis on investment and consumption growth. It must be highlighted that this approach would be in contrast to the government’s earlier stance, which was primarily focused on infrastructure development, HDFC Securities said today.

“In our view, the government would remain fiscally prudent and not resort to any major populist measures, which the market would consider positively. We believe that the thrust on infrastructure creation and reforms will continue, albeit at a slower pace, given the dynamics of coalition politics. Some reallocations of expenditure to social schemes should be expected in the upcoming budget. In addition, we may witness a slowdown in private capex as companies may postpone large investments in case of any political uncertainty at the Centre,” it added.

The BJP-led NDA alliance is a pre-poll alliance, and hence there may be less friction in the government formation exercise. However, after two consecutive terms of a clear single-party (BJP) majority, the coalition government is making a comeback. That said, unlike the earlier NDA coalition governments of 1998-2004 which had greater than 15 constituents with the BJP itself at 182 seats, this coalition will have a lesser number of constituents with the anchor BJP at 240 seats and thus potentially a more smoother approach to governance.

“Nonetheless, we expect the government to steer clear from the contentious issues such as Uniform Civil Code, One Nation One Poll, Farm Laws, etc. Prime Minister Modi in his victory speech, however, reaffirmed his commitments to reforms and growth,” HDFC Securities said.

The government does have some leeway with the higher-than-expected Reserve Bank of India dividend and recent moderation in Brent crude prices. “However, we see the broader fiscal discipline to be still maintained and long-term priorities like thrust on renewable energy, investments in power, PLI, etc., to continue. In the very near term, we expect the market to remain obsessed with government formation exercise, with a keen eye on key cabinet portfolios such as finance, defense, roads, energy, commerce, and railways,” said Motilal Oswal.

With elections now behind, fundamentally, India remains in a very good shape with almost a mini-Goldilocks moment with excellent macros (GDP growth of 8.2% in FY24 on the back of 7% growth in FY23, inflation at 5%, both current account and fiscal deficits well within tolerance band, stable currency, etc.), solid corporate earnings (Nifty ended FY24 with 25% earnings growth and FY25/26 earnings are likely to post 14-15% CAGR) and valuations at 20x one-year forward earnings.