2019 is likely to be an eventful year for Indian equities with the upcoming general elections keeping the market busy in the first half. The potential structural challenges facing rural India and unclear role of populist measures in deciding electoral outcomes imply that the post-May narrative will hold the key for a full-year performance.
Leading up to the general elections, there is very little doubt that populism is picking up. Ten states have announced farm-loan waivers over the past two years as election promises. As a share of GDP, this is closer to 2008, when the-then leading opposition party, the Congress, promised a nationwide farm-loan waiver if voted to power. The states that have announced farm-loan waivers make up for 65% of the country’s agricultural credit and also accounted for 55% of farm-loan waivers in 2008. In the recent budget, the BJP-led government announced its flagship Pradhan Mantri Kisan Samman Nidhi Scheme (PM-KISAN) program, an income-support scheme to supplement rural income. Yet, our analysis of data during past elections indicate an unclear role of populism in ensuring an electoral victory.
The disaggregated data of nationwide farm-loan waivers of 2008 suggests that the political impact may not be that obvious. A look at key states where loan waivers were dominant did not indicate improved results for the Congress in the 2009 elections, vis-à-vis other states which did not have any material waivers. Same was the case for states with high spending on the National Rural Employment Guarantee Act (NREGA) then.