There could be a lot of push and pull dynamics within the BJP with the coalition taking away BJP’s ability to push through radical policies.
During the coalition governments in 1990s and early 2000s, a host of reforms such as market economy, no licence permit raj, ‘Dream Budget’, Fiscal Responsibility & Budget Management, MGNREGA, Right to Food were introduced. The best performance of the stock market in a coalition government rule was under Prime Minister Manmohan Singh during the UPA-1
The NDA may have won a third straight Lok Sabha win, but the BJP’s tally has fallen below the 272-majority mark, indicating the crucial role of the allies in forming the coalition government. It is for the first time in 10 years that no single party has won a majority.
Have coalition governments led to successful economic reforms or derailed the growth trajectory?
Since 1991, when the India was introduced to privatisation and gave up planned economy model, all governments were coalition of sorts, which were far from the majority mark of 272.
What are the Reforms Brought by Coalition Govts?
PV Narasimha Rao: The government under PV Narasimha Rao was a minority government, which brought a host of reforms such as abolishing licence-permit raj, privatisation and a market-oriented economy. The reforms were necessitated after a sharp jump in oil prices in August 1990, leading to an unmanageable balance of payment situation, depleted foreign exchange reserves along with massive capital outflows, pushing India closer to the possibility of default. The country also became a member of the World Trade Organization (WTO).
HD Deve Gowda: He became Prime Minister in 1996 amidst uncertainty over the continuation of economic reforms, the political situation in Punjab, Nagaland and Jammu and Kashmir. In his government, P Chidambaram brought a ‘Dream Budget’ that included lowering income tax rates, removal of surcharge on corporate taxes and reduced corporate taxes. The Voluntary Disclosure of Income Scheme introduced by Chidambaram helped broaden the tax base and increase tax buoyancy over a period of time.
Atal Bihari Vajpayee: He carried on the spirit of the PV Narasimha Rao’s government in 1991, and set up Department of Divestment to privatise sick public sector units. India made a single largest investment abroad when Vajpayee’s government pushed to acquire a 20% stake in Sakhalin-I oil and gas fields in far east Russia in 2001. The government also framed the Fiscal Responsibility & Budget Management law for fiscal rectitude. It also unleashed the New Telecom Policy by replacing fixed licence fees for telecom firms with a revenue-sharing arrangement. The first NDA also brought in the Information Technology Act, in 2000, that laid the foundation for the e-commerce market.
Manmohan Singh: The UPA-I government initiated the Right to Education Act and Right To Information, which brought in transparency in India’s democracy. Right to Food also ensured no Indian would go hungry. UPA brought in the Mahatma Gandhi National Rural Employment Guarantee Act (MG-NREGA), which provided minimum employment to the rural poor. Singh government regulated fuel prices and started work on direct benefit transfers as well as Aadhaar and Goods and Services Tax (GST). In 2009, Manmohan Singh waived the farmer loan (Rs 65,000 crore) in order to provide them with relief.
How Stock Markets React to Coalition Govts
Coalition governments have not always been bad for the stock market. According to the data from PMIndia.gov.in, the Sensex returned 95.6% under the coalition government headed by VP Singh as the Prime Minister between December 2, 1989 and October 10, 1990.
The best performance of the Indian stock market in a coalition government rule was under Prime Minister Manmohan Singh during the UPA-1. The Sensex surged a massive 179.9% during this period. Under UPA-2, the Sensex logged a gain of 78%, while the Nifty soared 73.6%.
The National Democratic Alliance (NDA) with Narendra Modi as the Prime Minister saw the Sensex gain 61% between 2014 and 2019, shows data.
Will Big Bang Reforms Take A Backseat in 2024?
With the BJP not retaining the majority this time, it is likely that the NDA government at Centre will focus on bringing in populist reforms which would give the consumption sector a boost.
Reforms related to land, agriculture and labour could be off the table, according to Emkay Bank, which offers research-backed financial advice.
Lekha S Chakraborty, economist and professor at the National Institute of Public Finance and Policy said, there will be continuity with respect to the government’s focus on public infrastructure investment for supporting economic growth, as quoted by The New Indian Express.
There could be a lot of push and pull dynamics within the BJP with the coalition taking away BJP’s ability to push through radical policies. The upcoming elections in Maharashtra and Uttar Pradesh will bring challenges for the BJP.
The government’s focus is likely to shift towards addressing the population at the lower end of the pyramid such as the revival of rural economy with higher allocations towards income support and employment generation outside of MGNREGA, thereby rebalancing the widening K-shaped consumption pattern that is currently prevailing.
Reduction of tax on fuel thereby reducing prices of LPG, diesel, and petrol could also be seen after the dominance of local state parties in coalition government.