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May 28, 2019updated 26 May 2019 10:51am

What should HNWIs expect from another term of Modi?

By Oliver Williams

BJP has won another term as the governing party of India. But should investors and HNWIs celebrate the election result? Oliver Williams asks what India’s wealthy should expect from another term of Narendra Modi.

It might have taken six weeks, but the outcome of the world’s largest election is clear: the Bharatiya Janata Party (BJP) will continue to govern India, with Narendra Modi as its leader.

While Modi was widely expected to return as premier, his landslide victory was not. To India’s HNWIs, this presents a mixed blessing: the uncertainty of a hung parliament has been averted, but, given the BJP’s revived power, could their hostility towards the business community continue?

The BJP’s record in this regard has not been rosy. “The Indian economy, while clocking 7% per annum growth, has been sluggish since the demonetisation and GST [Goods and Services Tax] implementation,” says Udit Garg, head of the Private Client Business at Sun Global. 

Other economic upsets under the BJP include the resignations of two central bank governors and the exile of one of the country’s wealthiest businessmen, Vijay Mallya.

Modi’s hostility towards one of India’s wealthiest entrepreneurs will not have gone unnoticed by the HNW community. Modi, who has always vowed to crack down on corruption, has recently fought for Mallya’s extradition in UK courts.

These and other economic policies over the past five years have caused HNWIs to take their money out of the country in spite of the Liberalised Remittance Scheme which limits the amount that can send offshore in each financial year.

Further outflows might continue given what some expect is around the corner: “There are concerns about estate tax being reintroduced and because the UHNWI segment is the one that will get impacted, clients are concerned”, says Garg. There are also worries around real estate performance as an investment vehicle given focus on black money he says. 

hnwis indiaWhat to expect from Modi’s second term?

“In order to maintain momentum going forward, [the BJP] will have to bring the business community back into its fold”, says David Cornell, fund manager of the India Capital Growth Fund.

Pressure will be on Modi to create jobs to meet India’s rapidly growing population, which is on course to overtake China’s by 2024.

“Twelve million jobs have to be created a year just to stand still and you have a social revolution on your hands if you don’t create employment opportunities,” Cornell says.

“Going forward he’s going to have to focus on generating employment growth and that means manufacturing. India’s manufacturing base is low as a percentage of its GDP.

“Its a reverse to China. India consumes a lot but manufacturers and exports very little”.

Cornell expects Piyush Goyal, a former minister of railways and coal, to become the next finance minister. Something he believes will be positive for the business community.

Garg says investors can expect a simplification of the GST, an immediate resolution of NBFC crises, a focus on reducing borrowing costs and the “resolution of agrarian crisis to give a boost to demand within the bottom of the pyramid”, he says. 

However, as much as India’s politics will affect wealth in the world’s fifth largest economy, it will be business as usual for most HNWIs.

“There’s a saying”, says Cornell, “That China grows because of the government and India grows in spite of the government.”

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