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After India's elections, the real work begins


"Well the very air in New Delhi, where I am right now talking to people, is tinged with excitement - political excitement that is. It is by now the consensus that Mr Narendra Modi will form the next government and will be prime minister. But the key question is just how many additional parties' support he will need in order to ensure the political longevity of his government? If he ends up needing too many of these additional supporters, well, then he will have to cut political deals with them and may not be able to be as reformist a leader as he wants to be, and as people, especially investors expect him to be.

"So what are investors really looking for from the next government? Well first of all they will be looking at the very size of this government. If it is too large, if it is too unwieldy then the quality of decision making will suffer. There will be turf wars, and there also be coordination problems between ministries. So, a smaller, more tightly knit union cabinet will be very welcome and this is something that investors will be looking for.

"And the second thing that investors will want to know is who is going to be Mr Modi's finance minister. Now that is going to be very critical because there is a whole lot to be done for the economy. And Mr Modi's choice of the next finance minister, and what I am hearing in New Delhi is that instead of a technocrat, Mr Modi will probably pick a politician to be his next finance minister. Now that choice is going to matter a lot for investors because there are a lot of these bills, economic bills, which could not get passed over the last so many years and it will need deft political manoeuvring by the next finance minister to get all of this legislation passed and implemented. So that's also going to be key for investors.

"So what are going to be some key economic priorities of the next government? Well the next government will have to deal with stagflation, which is not easy. So it will have to revive economic growth by giving a spurt to private consumption as well as private investment. And, it will have to tame inflation by bringing down inflationary deficit-financed government spending. Now both of these will have to go hand-in-hand. Having said that, any dream that the economy is going to go back quickly to eight to nine percent growth is just that; a dream. The government will consider itself lucky and Mr Modi will consider it to be a job well done if in the next two to three years the economy gets back to, lets say, six to six and a half percent growth."

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