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Bunkum Or Brilliance? Chris Wood’s Confidence In India’s Economic Growth Beyond Political Transitions – IMPRI Impact And Policy Research Institute

Bunkum or Brilliance? Chris Wood's Confidence in India's Economic Growth Beyond Political Transitions


The stock market will tank if the BJP loses power in 2024, says Jefferies, investment bank and capital markets firm. Head of global equity strategy Chris Wood says that prices would fall 25 percent if the Modi government is not re-elected. In the same breath, he also said that such is India’s economic momentum that the markets would bounce back as well. Markets might move up or down, but whoever forms the next government would ensure broad continuity of economic policy, and India’s growth story would remain intact — that is the lesson from government changes in 1996, 1998, 2004 and 2014.

There are several things wrong with such forecasts of doom by foreign investment firms. One, it amounts to interference in India’s politics by a foreign capital markets firm. It is almost as if Wood is warning market participants and those who have a stake in the markets against voting out the Modi government. That he has a ‘put’ and a ‘call’ on a Modi defeat does not alter the fact that this amounts to a wholly unwarranted excursion by a capital markets firm outside its own legitimate area of operations into the world of politics.

Two, such forecasts of economic turmoil in case of a regime change run contrary to India’s historical experience. A brief survey of government changes since 1996 would make this clear.

No change in momentum when UF formed govt in India

The Narasimha Rao government that had initiated India’s economic reforms in 1991 bowed out in 1996, paving the way for a rag-tag coalition led by a clutch of regional parties to form the government. The Congress extended support from the outside, primarily, to keep the BJP out of office. This government by the United Front, it had been felt, would squander the reform momentum the Indian economy had acquired by the end of the Rao government’s five-year term.

That fear proved unfounded. The government was led by Deve Gowda, but had Chidambaram as finance minister. It cut income and corporate tax rates, dematerialized shares, mandating depository accounts in which to hold shares, liberalised foreign institutional investor activity in India’s capital markets, instituted a New Exploration and Licensing Policy for oil and gas; the Telecom Regulatory and Development Authority of India was set up as an independent regulator of liberalized telecommunications, and the reform process deepened. A representative of the United Front government represented India at the First Ministerial of the World Trade Organisation in December 1996. The Asian Financial Crisis of 1997 crimped the growth momentum, but there was no slackening at the level of policy.

No change when BJP govt took over

The UF government fell early in 1998. A coalition led by the BJP, with Atal Behari Vajpayee as Prime Minister, took office. When the Rao government launched liberalization of the economy, the BJP had opposed the process, allowing the Swadeshi Jagran Manch to take the lead on policy and aligning with the Bombay Club of Indian big business worried about opening up to external competition. However, the Vajpayee government, with Yashwant Sinha and later Jaswant Singh leading the finance ministry, continued with the reform programme, indeed deepened it in indirect taxes, reducing import protection, and accelerating highway construction and rural road building.

The National Highway Authority of India was set up in 1988, when Rajiv Gandhi was the prime minister. But it really came into its own under the Vajpayee government. The Electricity Act of 2003 institutionalised earlier policies of unbundling power generation, transmission and distribution, opened up the sector to private participation and set up a regulator. Two committees on taxes under Vijay Kelkar did much to clarify thinking on value added tax and direct tax reform. By allowing private telecom companies, which had won their operating licences by bidding unrealistically high amounts as licence fees and faced bankruptcy if they paid up, to migrate to a revenue-sharing arrangement, these were enabled to survive, and later, thrive.

The rise of teledensity

When Reliance Infocomm entered mobile telephony, misusing its licence for limited mobility via wireless in the local loop, there was a choice before the government between coming down like a tonne of bricks on this violation of licence terms or permitting full deployment of the CDMA technology used for wireless in the local loop to introduce one more player in the mobile telephony market, after collecting an entry fee and a penalty from the offender.

The Vajpayee government sensibly chose the latter option. This led to Reliance’s Monsoon Dhamaka, offering consumers mobile telephony for Rs 500 a month, including ownership of a handset, transforming the service from an elite indulgence to the common man’s affordable utility. Teledensity began to rise.

The final year of Vajpayee’s tenure as PM saw India grow at more than 7%. The BJP coined the India Shining slogan, went to the polls, oblivious to the stain of the 2002 Gujarat riots on their record and the impact it had on support for the BJP. Wily politician Ram Vilas Paswan, who could be trusted to figure out which way the wind was blowing, left the NDA. India continued to shine, but the electorate rejected the BJP and its alliance, giving more seats to the Congress, which put together a coalition, which they named the United Progressive Alliance. The markets tanked 20 percent, but soon recovered and began to rise again.

UPA’s big push

The UPA deepened the economic reforms, innovating massive public-private partnership in infrastructure. This led to the ratio of gross fixed capital formation to GDP rising to the highest level ever, touching 35.8% and staying above 34% for several years on the trot. Construction boomed, roads and towns were built, labour moved from rural areas to towns to become construction workers.

Wages rose on the farm and in towns, as a result, reducing poverty and creating a boom in rural demand that led to the growth of new firms all over the place. The government enacted a right to information, pushed education and healthcare, created legal protection for the rights of forest dwellers and forged a nationwide social safety net dubbed an employment guarantee scheme, in which the role of employment, in the form of manual labour, was to serve as a self-selection tool to weed out the non-poor.

The power sector saw the creation of ultra-mega projects, power generation capacity zoomed, workarounds against inefficient, but politically unassailable state monopoly of coal were created in the form of liberal allocation of captive coal mines so that the power plants would have coal to fuel them. Rural electrification was kicked off and a financing corporation created to fund it. Liberal grant of mobile telephony licences saw tariffs plummet, deepening affordability; and rural teledensity zoomed from less than 2% to more than 50%, creating one of the most spectacular telecom revolutions in the world. It is a different matter that inept political leadership led this being labelled a scam, as well as the allocation of captive coal mines.

The big Aadhaar push

The UPA government innovated Aadhaar, a biometrics-based unique identification scheme. The Aadhaar number allowed the migrant poor to establish their identity wherever they went, paved the way for financial inclusion. Microfinance flourished. The National Payments Corporation of India was set up in 2008, and started working in 2009. Nandan Nilekani, whom the government had roped in to develop Aadhaar, led the development of India Stack, a clutch of APIs (application programming interfaces) to create utilities based on Aadhaar. The Digilocker, UPI, the consent layer for sharing one’s financial data with chosen entities — all these flowed from Aadhaar and India Stack.

The UPA government signed the Indo-US nuclear deal in the teeth of vehement opposition from the BJP, which nearly brought the government down in the process. This led to large American multinationals looking for reassurance as to stability of relations between the US and India making largescale investment and sourcing from India, Boeing being a case in point.

However, the UPA could not implement its plan to introduce a Goods and Services Tax, as the BJP opposed it tooth and nail.

Modi’s volte-face

Yet, when the BJP formed the government in 2014, it turned out that all their opposition to major UPA policies had been totally opportunistic. Chief Minister Modi had opposed Aadhaar, GST and the Indo-US nuclear deal. Prime Minister Modi owned up these initiatives and carried them forward. His government has strengthened insolvency resolution and expanded India’s digital public infrastructure, built on the foundation of Aadhaar, which term means, surprise, surprise, foundation. Modi had hailed the rural employment guarantee scheme as a monument to failure, but now takes credit for its expanded implementation.

The UPA focused on social and political inclusion, to a fault, the fault of pandering to minority obscurantism. The NDA government fosters division, in the name of remedying past minority appeasement. The politics of schism and feeding a sense of victimhood among the majority plunged Sri Lanka into prolonged civil war, and political and economic crisis. India cannot afford to go down that path.

Change in political regimes does not alter the basic thrust of economic policy and reform, nor of foreign policy. The stock market might slump temporarily if there is discontinuity of the political regime after next year’s general election. But India’s inherent economic dynamism will sustain, regardless of the regime, so long as divisive politics does not lead to political instability.

TK Arun is a senior journalist based in Delhi.

The article was first published in The Federal as Bunkum Chris Wood: India’s economy will boom regardless of who forms the next govt on November 23, 2023.

Disclaimer: All views expressed in the article belong solely to the author and not necessarily to the organisation.

Read more from the author at:

Silent Diplomacy: The Significance of a Bark-Free Biden-Xi Meeting for Bilateral Ties

Acknowledgment: This article was posted by Tanu Paliwal, a research intern at IMPRI.

  • IMPRI Desk
  • TK Arun

    TK Arun is a Senior Journalist and Columnist based in Delhi.


    IMPRI, a startup research think tank, is a platform for pro-active, independent, non-partisan and policy-based research. It contributes to debates and deliberations for action-based solutions to a host of strategic issues. IMPRI is committed to democracy, mobilization and community building.

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