May 13, 2004|
Elections: It's the 'spirit' that counts
Results for elections to the 14th Lok Sabha have been declared and the situation now appears to be clearer than ever as compared to the last one month. While uncertainty regarding who will form government at the Centre goes, another remains - what will be the future of the reforms process in the country. The NDA government had given a push to the reforms process that was initiated by the Congress government in the early 1990s. However, whether the new government will be able to take the process forward from here on remains a highly speculative issue.
If one were to look at the performance of both NDA and non-NDA governments over a period of the last decade, there has not been a marked difference. While gross fiscal deficit (state and Centre combined) began its upward movement during the non-NDA rule (1996 to 1998), the levels continued in the rule of the NDA. There can be various reasons attributed to the rise in fiscal deficit. One of them has been the increased investment in infrastructure projects like highways and housing.
While these are facts and we are not going into which period was the best, we suggest investors have a very good look at the graph above. The graph is the five-year average GDP growth of the Indian economy since 1952. As is evident, despite all the elections, growth and reform issues, the economy is gradually moving towards a higher growth trajectory. And the trend is likely to continue from a long-term perspective.
So, in what way is this election significant? How should a retail investor view the same?
In the top-down approach to investing, politics is at the top and one cannot understate the importance of a 'stable' government at the top (Read our special article on Politics and the stock market).
But over the years, the dependence of Corporate India on politics and the right politician has gradually reduced. It is the entrepreneurial spirit of India Inc. that has survived and blossomed despite the odds. That we believe is likely to continue despite all odds and worries on the political horizon. As an investor, if you have to back somebody, it is this 'spirit' that will come out on the winning side over the long term.
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