【Mumbai】Recent results of state assembly elections and opinion polls are clearly indicative of wave in favour of Narendra Modi - the prime ministerial candidate of the Bharatiya Janata Party (BJP). Foreign institutional investors are "overweight" on India largely based on the assumption that a stable coalition led by the BJP in majority will kick-start the investment cycle by introducing a host of pro-growth policy measures. But what is the co-relation between political stability and positive economic outcomes?
The economics research department of JP Morgan put out a note last week to analyze evidence of the past 20 years. According to the special report, titled "5 Questions That Keep Us Awake', to address this question, the analysts created an index of political stability which is defined as the fraction of seats of the largest party in the ruling coalition vis-a-vis the total number of seats in the Lok Sabha(543). For example, if the party with the largest number of seats in a governing coalition was 200, the index is 200/543 or 0.37. Thus, the larger this ratio, the more politically stable the government is presumed to be.
JP Morgan's analysts found no positive co-relation between the index of political stability with three key macro-economic variables, such as rising GDP growth, lower wholesale inflation and lower fiscal deficit as a percentage of GDP between 1992-2014. As per conventional wisdom, we would expect the index of political stability to be positively correlated with growth. Instead, their analysis shows more stable regimes are associated with lower growth over the last 20 years. When the Indian average GDP growth rate for 1992-2014 is plotted against the index of political stability, we see the negative co-relation between the two variables as shown in the graph.
○Cong attacks Modi on Gujarat BPL figure
【New Delhi】A war of words broke out on Monday between the BJP and the Congress over the Below Poverty Line (BPL) criteria, with Gujarat being at the centre of the controversy.
While the Congress sought an apology from the BJP's prime ministerial candidate Narendra Modi for "insulting" and "mocking" the poor as the yardstick for those below the poverty line in Gujarat has been pegged at Rs. 10.80 daily, the BJP hit back saying determining the criterion was the domain of the Centre and the Planning Commission. The BJP accused the Congress of not doing its homework before targeting Mr. Modi.
Modi-led stable government doesn't assure new bull market
Congress-BJP spat over BPL criteria
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