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Economy to boom if India gets a stable govt

April 24, 2009 17:38 IST

Global financial major Goldman Sachs expects the Indian economy to recover from slowdown in the second half of this fiscal, if a stable government is formed after General Elections.

"The evidence appears to suggest that if a stable government were to come to power, markets would be driven by fundamentals and global cues. In that event, leading indicators suggest to us a recovery in economic activity in the second half of fiscal year 2009-10," Goldman Sachs said.

Referring to economic activity post-polls in the past, the financial firm said economic activity increased immediately after five elections out of seven since 1984.

"On each of those five occasions, a coalition perceived to be stable, has come to power," it said in a report, titled India: Impact of the Elections on Activity and Markets.

The two elections in which activity declined were when neither of the two major national parties - the Congress or the Bharatiya Janata Party - were a part of the ruling coalition.

Elections do not change the trajectory of the business cycle, the report said, adding that the impact of the elections should not be overplayed.

"According to our estimates, election cycles do not interfere significantly with the economic cycle. We continue to expect GDP growth to be 5.8 per cent in FY10, above the consensus of 5.1 per cent."

Goldman Sachs said the stock markets have declined during the election period in four out of the five elections since 1980.

"Directionally, global markets have had a greater impact on the stock market than elections in that year," it said.

Volatility in the rupee has declined post-elections after every general election since 1989, the report said.

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