Five States Elections – Rajasthan, Madhya Pradesh, Chattisgarh, Telangana, Mizoram.
Following the pronouncement of elections in some Indian states, the impact of the election will simply increase the instability of the nation’s market. The nation recently witnessed a fall in its currency, Rupee and an unfortunate increase in crude oil prices had further weakened the Rupee. Prognostics and market analysts have argued that the market instability is not attributed to the announcement of elections but rather weak fiscal policies made by the government causing increased inflation.
However, they expect that the market should remain volatile with negative growth rate and might still be impacted by the outcome of the elections.
India, an emerging economy, is the one of world’s largest economy (precisely the sixth in ranking) in terms of nominal GDP and the third largest in terms of its purchasing power (PPP). The country is speculated to have a strong economic growth largely due to its young populace, increased investments and low dependency ratio.
Two years ago, it witnessed an economic growth of approximately 8 percent, topping the world bank’s growth outlook. It boasts of one of the fastest growing services sectors and IT services. Agriculture remains the mainstay of its economy contributing about 20 percent to its GDP.
With the 2019 general elections fast approaching, investors are cautious about the performance of the Indian market. The political sector is being regarded as one of the most crucial sectors in a nation.
Elections impact on Indian Stock Market
Below are five impacts of state elections on the Indian market:
- Inflation: This is the sustained increase in the aggregate price of goods and services measured by the index of the cost of various goods and services. Due to the country’s current economic situation and the weakening Rupee, inflation is bound to happen. We might have a recurrence of what happened in the 1973, where the country had a terrible inflation which didn’t drop below 20 percent for more than 4 months consecutively. Some other factors such as drought in some part of the country and currency devaluation also influenced the inflation level.
- Delay in decision making: The state elections tend to delay decision making in state assemblies. This delays the implementation of various projects and the progress of other sectors. Also, bills and reforms that require implementation might be pended until after elections, there by affecting the economy. Investors and businessmen also postpone key decisions until after the election and also wait to analyse the feasibility of their plans in line with the policies of the new government.
- Increased governments pending: Government expenditure, over the years, tend to increase before and during an election year. Extra funds are pumped into public expenditure and are eventually wasted. This increased spending,although might seem generous, is spurs up inflation rather than a real economic activity.
- Change in oil pricing: During election periods, fuel prices poses almost as stable as possible. Most oil manufacturing companies of the public sector might ease off on raising oil prices, even going as far as sacrificing their profit margins. However, after the election, they hike their prices to make up for their losses, sometimes it exceeds the global prices for these fuels.
- Increased revenue for the services sector: The media houses are one of the beneficiaries of the election periods. They earn significantly on advertisements and campaign mechanisms there by boosting the economy.