India: Promises and exceptions | Analyst Picks | RiskMap 2020
Promises and exceptions
If 2019 marked the year of political consolidation where Prime Minister Narendra Modi’s Bharatiya Janata Party established itself as India’s dominant national party - 2020 looks set to mark an inflection point that sees him pivot away from his party’s social and cultural agenda and instead turn to the economy.
Having espoused an aggressive brand of muscular nationalism with the promise to safeguard Hindu rights, Modi’s early move to revoke Kashmir’s special status, coupled with the Supreme Court’s decision to award a bitterly-contested religious site in northern India to Hindu groups, handed the BJP and its supporters a major political victory against both these counts.
This has meant that – even though the subsequent enactment of a controversial citizenship law triggered nationwide protests and raised social tensions – Modi still enjoys significant political capital. It is this continued support which he will seek to tap into as he doubles down on his economic agenda in 2020, before the next round of major state elections in Bihar in late-2020 and West Bengal in early-2021. This could see Modi refocusing attention on the delivery of his economic promises to maintain his popular appeal, especially as he confronts high rates of unemployment and a concerted economic slowdown.
Expect Modi to pursue his clean-up of India’s debt-laden banks by merging several state-owned banks to improve efficiencies, while continuing to aggressively leverage tools like the new bankruptcy law to recover bad loans. Faced with falling tax revenues, businesses can also expect a renewed focus on divestment and privatisation of state-owned companies, the receipts of which Modi will likely use for plugging the fiscal deficit gaps.
However, Modi’s bid to leverage the US-China trade war and strengthen domestic manufacturing will continue to be hampered by his decision to walk away from the Regional Comprehensive Economic Partnership (RCEP), a move which will disincentivise companies from linking India to their regional and global supply chains. For most businesses risk in India will remain primarily operational, reflective of the particularly challenging compliance environment, difficulties in dealing with India’s highly devolved institutional and bureaucratic set-up, as well as poor enforcement of contracts and limited avenues for dispute resolution.