India is the World’s largest democracy, and the Union election of India is a massive exercise of franchise, there is no doubt that it plays a crucial role in our country’s Economics. The Election Commission of India manages this massive exercise conducted over multiple phases over a few weeks. The scene of action keeps shifting and leaders make a whirlwind tour across the country to reach out to the electorate. Let us look at the elections in the recent past and the effect of reforms over time.
1991 – The Massive Economic Reform
The 1991 elections were the redefining moment of India’s economy. India had to recover from the economic doldrums because of the balance of payments deficit. Indian imports were significantly more as compared to exports, and the Gulf War raised the price of crude oil worsening the crisis. India had over time raised a large amount of foreign debt. India had foreign reserves to cover less than 3 weeks of imports.
PV Narasimha Rao led Congress took over and formed a minority government in 1991. He appointed Dr Manmohan Singh as his finance minister and P Chidambaram as commerce minister. The reforms started with pledging the gold reserves to foreign central banks followed by letting the rupee slide. It made our exports competitive and overhauled our business operating system. India’s growth started from there and is still on the rise. It was the pivotal and most impactful 5-year reign in terms of economic reforms.
1996-99: Short-term PMs
From 1996 until 1999, India was unable to elect a stable government, there was little room for pushing reforms. One significant reform still managed to come out in 1997 by the third front supported by Congress. Mr P Chidambaram introduced the VDIS Scheme. The Voluntary Disclosure of Income Scheme, 1997 was able to net Rs 10,050 crore as additional revenue, on an undisclosed income of about Rs 33,000 crore, far exceeding the government expectations. This scheme helped the Government to get additional revenue.
In May 1998, Mr. Vajpayee led a government, in India that conducted the atomic bomb tests in Pokhran, the operation called Laughing Buddha. The entire operation is under the helm of Dr Abdul Kalam. This was followed by Pakistan conducting its tests and sanctions on both countries by the Western nations.
1999 – First NDA
In 1999, Mr. Vajpayee led the NDA alliance won the elections and formed a stable coalition Government. IT and Technology companies had a great time since the entire world migrated towards investing in that space. The liberalised policy helped our tech companies and the world’s leading tech companies look at India as one of the better places to invest and grow as India is democratic and has a large technical talent pool. The government also started spending on infrastructure and built the Golden Quadrilateral, which has redefined the entire Highway roads of India, and helped people get used to better roads, connecting major cities to reach quicker time etc.,. During the tenure 1999-2004, NDA proposed the disinvestment plan, formed a ministry called the Ministry of Disinvestment, reduced the government’s role in running businesses and unleashed the productive assets, as the government unable to spend more money on companies.
2004 – UPA With Communists
In 2004, the NDA lost and the UPA formed with the support of communist parties. During this phase, the global economy was supportive, and India had one of the fastest growths. Around the same time, the government proposed capital gain tax abolishment and introduced STT, which was a game change. It made a robust growth of allocation in savings to Indian equities. They also introduced the SEZ Act, which helped a lot of export-based industries, especially IT companies grow. They have introduced MNGERA, which ensures 100 days’ work to people in the village, which has redefined the Wage system. But with the support of Left parties, the UPA-I was unable to do big reforms. The advent of the subprime crisis in the USA started affecting the growth towards the end of their term.
2009 – Return of UPA
In 2009, it was a big surprise to the market, as markets favoured the outcome as Congress plus an alliance, formed the government without the support of Communist parties. That caused the market to rally more than 20% in two days, as the market expects this government can do more reforms as they have a coalition majority, and the market may open up further. The growth was good until 2010, after the next 4 years, because lack of fiscal discipline, and more subsidy burden caused reduced government spending, discouraged private investments, and inflation started inching up, unlike their previous 5-year term. The global recession put our economy on a tough path, between 2010 to 2014 first half of the economy and market had a tough time.
2014 – Return of NDA
2014 – The verdict was solely in favour of NDA under the leadership of Mr Modi as PM for the first time, markets expected a lot of reforms. The two major things are demonetization and GST implementation. Which made major impacts on the economy as a whole, there were side effects but also positive effects., the GST brings more people into the system and reduces tax evasion, the demonetization was a tougher reform, made people have trouble, but caused the country to get in the first step into UPI based from cash-based. The Government started reducing the Subsidy and increased infra spending slowly, which caused Private spending in the economy.
2019 – NDA continues
This was a challenging term due to the pandemic. The government decided in September 2019, to reduce the Tax for corporates, make corporates to invest more and increase employment. The advent of the first pandemic since the Spanish Flu, it destroyed the entire world’s growth, and all economies had trouble. Many central banks started to print money to compensate for the loss of livelihood. They began to concentrate on maintaining people’s safety, but the loose fiscal policies were the norm. It ultimately led to high and sticky inflation that is still unresolved. The Russia-Ukraine war also pushed inflation higher, leading to all-time high interest rates in most of the Western world.
2024 – NDA or INDIA
The challenges now: Once any government swears in, they have to concentrate Consolidation of GST rates, LTCG rates etc, also they have to reduce the Red-tapes, and bureaucracy. The make-in-India, PLI schemes should be at par to meet the expectations of entrepreneurs to bring scale., and help MNCs to get easy access to the Indian market, the initiatives like GIFT city, should be pushed aggressively to get more players to establish their business in India., pre 1991 India was Agriculture based economy, now we are Service based economy. If this new government helps with contributions from Ministers, Officers and companies with better infrastructure in place and investment climate in good shape, make Vibrant India movement, will give better results in the coming years. We hopefully expect the incoming Government can do this.