India's equity and currency markets have given a rousing welcome to the assembly election results with 30-hare benchmark BSE Sensex vaulting to a new high.
The assembly poll results in which the BJP returned with an absolute majority in three states — Madhya Pradesh, Rajasthan and Chhattisgarh — and as the single largest party in Delhi, have triggered hopes that stable governments in key states could be a precursor of a steady regime at the Centre after the 2014 Lok Sabha elections.
Market participants believe that a stable regime at the Centre that enjoys a comfortable majority will allow the government to focus more on reforms, vital to spin jobs and multiply income, rather than on political risk management and appeasing restive alliance partners.
There is no gainsaying the fact that India's economy needs an overhaul after sputtering over haywire prices. Stubbornly high food prices have been emblematic of India's inflation woes, as the price of onions, along with most vegetables, have quadrupled ahead of a general election.
India's wholesale inflation has breached 7% and retail inflation has touched double-digits at 10%, as consumers continue to battle a sticky spell of high prices, deepening problems for a government trying to push growth in an election year.
It is vital for the government to press ahead with critical reforms, some of which need to be voted into law by Parliament. Hiking the FDI ceiling to 49% from the current 26% in India's rapidly growing private insurance sector is more about reversing the slowdown in India's economy, and less about allowing foreign investors access to household savings.
India is in dire need of resources to fund its infrastructure needs. Likewise, a contemporary Direct Tax Code and stitching together a common national market by rolling out a Goods and Services Tax are ideas whose time has long come.
Investment decisions are well thought-out and predicated on a variety of factors, including global perceptions about the destination country. Importantly, we cannot lose sight of the fact that India will be competing with other emerging nations to attract from the same pool of dollars. Whoever forms the government in 2014 must have the stomach for unpopular choices to revive the economy and provide clean governance.
The burden of expectation on economic reforms is too heavy to ignore.