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India Strategy - 2019 General election analysis #2: Expert insights

We recently initiated a series of notes on general elections, where we intend to analyse– a) underlying trends in voting patterns, b) coalition dynamics, c) expert inputs and d) economic implications of the election outcome, in detail. In current note we analyse expert insights on upcoming elections and their thoughts on reforms agenda. Our first note in the series (on opinion polls and coalition dynamics) can be found .

We recently met a few prominent psephologists and journalists to understand their views on expected outcome of the upcoming elections and coalition dynamics. In almost all plausible scenarios – Bharatiya Janata Party (BJP) emerges as the biggest party (thus expected to get invitation to form the government). In what appears to be a base case scenario, National Democratic Alliance (NDA) led by the BJP should bag about 250-255 seats (out of 542). This will enable NDA to form stable government, which will also be supported by suitable post poll alliance. Uttar Pradesh (UP) remains the most enigmatic state with seat estimates across experts varying from 20 to 50 (based on how caste based politics and nationalist sentiment will play out). The other two most interesting states in 2019 elections may be: 1) Andhra Pradesh (AP), as Mr. Naidu is emerging as a formidable third front figure and 2) West Bengal (WB), where the ‘Citizenship bill’ may favor BJP in the state. Madhya Pradesh (MP), Rajasthan and Maharashtra seem strong for NDA, while Tamil Nadu (TN) seems the strongest for United Progressive Alliance (UPA) with an expected slight edge (for UPA again) in Karnataka. Post-elections, the new government’s reform agenda would be key in understanding the economic outlook from FY20 onwards. Most experts pointed that disinvestment reforms, GST smoothening (invoice matching and e-way bill) and financial sector reforms will warrant immediate attention.

Base case with 250-255 seats for NDA: NDA win on 250-255 seats emerged as a base case scenario with individual estimates varying from full majority (with NDA crossing the 272-mark) to NDA capturing close to 220 seats.

Pointing to a reasonable probability of a government with NDA at the helm: Looking at most scenarios, we believe NDA will emerge as the biggest party and will form a stable government. We expect any shortfall in seats to be met with post poll alliance which continue to be dynamic.

While nationalist sentiment has helped NDA gain momentum, fast changing coalition dynamics may change the narrative by mid-April: In light of two facts: a) coalition dynamics are fast changing and b) polling population tends to have a short-lived memory - we believe the recent nationalist sentiment-driven narrative may be prone to change. In such a case, we expect fringe voters (one’s who decide at last moment) to be driven by the dominating narrative then, thus swinging closely-contested seats across major alliances.

UP remains enigmatic and sees the widest variance in estimates: Our discussion with experts indicates that UP remains an enigma on account of a) how caste-based votes will consolidate (a simple addition of all caste-based votes won’t work, as sub divisions within castes may fall out of consolidation, which could benefit the NDA), and, b) to what extent Pulwama would help consolidate religion-based votes. Within UP, NDA had won 15 seats with >50% vote share in 2014, which it will manage to retain. For the remaining seats, the win estimates vary from 5-35, pegging NDA’s UP seat win at 20-50, as per experts.

WB and AP to be next important states: Few experts expect WB to be packed with surprises, as BJP may gain ground with WB Hindus on account of ‘The Citizenship Bill’. Moreover, WB sees asymmetric voter distribution (in 2014, BJP won 2 seats with ~18% vote share, while Congress won 4 seats with about ~10% vote share), which makes it hard to predict. Experts touted that NDA could win as many as 10 seats in WB in 2019 elections (out of 42).

Though TDP is expected to see anti-incumbency wave in AP, but Mr. Chandrababu Naidu is being seen as central and a strong figure for third front. Hence, the developments in the state would be interesting to watch out for.

MP and Rajasthan swing in favor of NDA: According to most experts, MP and Rajasthan (other than UP) have seen the maximum swing in favor of NDA post Pulwama attack. Hence, BJP may retain solid ground in this state.

UPA seems to have a reasonable edge in TN and a mild one in Karnataka: TN is one of the states where UPA is expected to be strongest, as DMK stands to benefit from the anti-incumbency wave against AIADMK. Interestingly, though most opinion polls show NDA having a slight edge in Karnataka, most experts we spoke to believed that JD (S) and Congress would have an edge over NDA in the state. 

Reform agenda important: Once the new government is formed, markets will once again mull over the question of reforms agenda, which appears to be relatively ‘unattended to’ at this stage. Given that the long-term economic perspective and direction of reforms is currently missing, we believe reforms on disinvestment, GST course correction (e-way bill and invoice matching) and the financial sector are urgent areas that the new government will need to look into.. Plus, a populist emotion may not bode well for the fiscal math. Hence, getting the economic perspective straightened may warrant urgent attention, as soon as the new government is formed.​