Five states are gearing up for assembly elections in November, with the outcomes holding immense significance for India’s political landscape. The Indian National Congress and the INDIA bloc aim to challenge the ruling Bharatiya Janata Party (BJP) in the upcoming Lok Sabha polls, making these state elections a crucial battleground.
Economists and analysts are closely monitoring the elections in Chhattisgarh, Mizoram, Rajasthan, Telangana, and Madhya Pradesh, expressing concerns about the possibility of a weak coalition government emerging in 2024. A weak coalition government could shift the focus back to redistributive policies, hampering efforts to boost capital expenditure and implement crucial supply-side reforms, according to Morgan Stanley’s Chief Asia Economist, Chetan Ahya.
The rural economy, which has been slow to recover from the Covid-19 pandemic, is showing signs of revival. Despite challenges such as elevated food prices and below-average monsoons, rural India experienced growth in the March quarter after six consecutive quarters of decline. Companies like Marico, Dabur, and Godrej Consumer Products anticipate a boost in rural consumption due to potential fiscal stimulus measures aimed at the rural sector, often associated with election years.
However, concerns have arisen regarding the “revdi” culture, where political parties make populist promises to win elections. Critics argue that such reckless giveaways could hinder India’s long-term growth prospects. Recently, the Modi government extended India’s free foodgrain programme by five years, a move that, while beneficial in the short term, could impact the government’s fiscal deficit target and macroeconomic stability in the long run. Despite these concerns, economists believe that with upcoming crucial state and national elections, restraining government spending to fulfill electoral promises will be challenging.