India and Narendra Modi - Brimming with Confidence
The dominant Indian National Congress party (INC) ruled India for over fifty of the seventy-seven years since independence in 1947. Indira Gandhi remains the best known and most iconic INC leader. Her father, Jawaharlal Nehru, was a leading figure in India's independence movement and became the first Prime Minister of independent India. Indira Gandhi was elected for three consecutive terms, serving as Prime Minister from 1966 to 1977 and again from 1980 to 1984 until assassinated by her own Sikh bodyguards in retaliation for ordering the storming of the Golden Temple in Amritsar.
The INC garnered votes by promising voters handouts, subsidies and other state aid. This was a socialist government, aligned to and militarily funded by Russia, where private enterprise faced vast amounts of red tape and heavy-handed restrictions.
The last time the INC were in power was 2004-2014 under Prime Minister Manmohan Singh and while they can take credit for initiating the Aadhaar program (a 12-digit unique identification number issued to Indian residents based on their biometric and demographic data, a monumental achievement driven by Rishi Sunak’s father-in-law) it is the BJP that have taken advantage of it.
In 2014, the Bharatatiya Janata Party (BJP), led by the charismatic Narendra Modi, blew the INC away and, as Modi heads towards almost certain re-election for a third term in May this year, the Indian economy is simply unrecognisable from the economy they inherited a decade ago. Why? Simply put, Modi has done away with state subsidies, handouts, red tape, and heavy-handed restrictions and has instead focused on enabling the average Indian to better themselves and effectively weened them off state support. Aadhaar has played a key role in revolutionising financial inclusion, eliminating fraudulent activities and leakages in subsidies and facilitating very targeted welfare schemes and benefits.
The weakest link of the Indian economy, however, has long been inadequate infrastructure and this remains the BJP’s principal focus. It is noteworthy that the recently announced FY2025 mini-budget did not include a single new or expanded social scheme. Unheard of! The FY2025 budget is fiscally tighter than expected while the 16% increase in capital expenditure was substantially higher than expectations.
Since May 2014, the Indian equity market has generated roughly three times the return of the Asia ex-Japan asset class. Much of this outperformance has occurred since mid-2021 when the wheels started coming off the Chinese economy. Current valuations are admittedly eye-watering but for the long-term investor we would not be at all surprised to see the third Modi administration make further substantial progress.
If you would like to receive The Daily Update to your inbox, please email markets@epicip.com or click the link below.