BJP manifesto a marked shift from UPA's policies

Promise of investment-led growth to fuel market sentiment further

The market is surprised the Bharatiya Janata Party (BJP) has taken so long to release its manifesto because it contains nothing new. On the face of it, the manifesto is a non-event because the BJP’s prime ministerial candidate Narendra Modi has already conveyed that good governance matters more than policy. This is possibly why the party seems to believe the answer to all of India’s ills is Modi. So far, the party brass has not been able to give any concrete answer on how it intends to lift India’s growth rates from the current lows. But the manifesto’s contents indicate the party has a road map.

High on rhetoric, the manifesto begins by promising to tame inflation. But inflation is the end product of faulty economic policies and not the cause. What economists will find comforting is the BJP’s focus on productivity enhancement and investment-led growth.

The United Progressive Alliance (UPA) has fuelled consumption-led growth through its entitlement schemes, which has led to severe fiscal imbalances and high prices. The BJP manifesto promises to deal with inflation by not only cracking down on hoarding and black marketing but by focusing on overall availability.

The BJP manifesto focuses on exactly what the market has been clamouring for — investment-led growth. It promises to build everything from irrigation canals to bullet trains to give infrastructure the required boost. Sonal Varma, Nomura’s India economist, says: “Inflation is an outcome of faulty macro policies. India needs policies that will fuel investments and not consumption. The BJP’s manifesto suggests it will focus on investments. However, a little more detail on issues like fuel subsidies would have been welcome.”

The word ‘infrastructure’ appears over 30 times in the 41-page report. The market seems to be buying this theory. Rakesh Arora, managing director and head of research at Macquarie Capital, says: “The past performance of the NDA (National Democratic Alliance) government, Modi’s performance as the chief minister of Gujarat and his vision as articulated in election speeches, indicate the focus will be on governance, big infrastructure projects and manufacturing."

Equity strategists and economists say history suggests the NDA government can deliver upon its promises. The BJP-led NDA can be credited with building 50 per cent of the national highways built over the past 30 years and liberalising several sectors. If elected, the market expects the BJP-led government to act upon its plans of building 100 smart cities, interlinking major rivers in India and introducing bullet trains.

The new government will get a headstart from the beginning as the UPA government in its last few months cleared projects worth $85 billion. Existing projects like new ultra mega power projects, dedicated freight corridor and the Delhi-Mumbai Industrial Corridor would kickkstart the investment cycle. Call this the tailwind effect, if you please.