2014 polls to boost Indian economy, rupee: Deutsche Bank
The 2014 Lok Sabha elections could help boost the fortunes of the Indian economy and the rupee, Deutsche Bank Research said in a report.
Examining the economic data in the lead up to and after last five Lok Sabha elections, held in 1996, 1998, 1999, 2004, and 2009, Deutsche Bank Research said "there is evidence of growth picking up after an election."
"GDP growth tends to pick up gradually after an election. Within three quarters of an election, growth rises by as much as 100 bps," the report added.
Deutsche Bank Research said the end of political uncertainty after the election could be a factor for improving investment sentiment, thus boosting economic growth.
The report also noted that rupee depreciates in the period leading into elections, perhaps reflecting uncertainty among investors. However, after the elections, the rupee, on average, appreciated by 3 per cent within three quarters of an election, the report reckoned.
Deutsche Bank Research noted that foreign institutional flows generally picked up after an election. "Barring the 1998 election which was beset by the Asian crisis, the last two elections in particular have galvanized foreign investor sentiment, but even the 1999 elections saw a mild pick-up," the report noted.
Other findings of the report
Citing past data, Deutsche Bank Research said, "The fiscal performance before and after an election is mixed. We don't believe the data supports major fiscal slippage around elections."
Deutsche Bank Research also noted that inflation tends to ease somewhat before election and rise then rise by 100-150 bps afterwards, suggesting that "incumbents try to cause favorable economic outcomes in the lead-up to an election."
The consumer inflation is currently hovering around the 10 per cent mark and is forecast to slip on good monsoon. Deutsche Bank Research said that inflation during 2014 is likely to "feature a similar pattern but for different reasons."
"A good monsoon, likely declines in global oil prices, and base effects could lead to substantial disinflation before the 2014 elections, but that outcome clearly would not be a function of political expediency," Deutsche Bank Research said.
