A Modi-led government may cut subsidies, create more jobs: BNP Paribas

Indian markets have been correcting for the last four sessions after a record-setting rally pushed the BSE Sensex higher by over 6 per cent this year. The Sensex has outperformed the MSCI emerging equities index on expectations that a strong government post elections will be able to steer India's economy out from the current slowdown.

Most opinion polls have predicted a win for Narendra Modi-led NDA in the ongoing elections. Mr Modi, the BJP's prime ministerial candidate, is also seen as a market favourite because of his business friendly image.

Manishi Raychaudhuri, head of research at BNP Paribas Securities, told NDTV that a desired outcome, as projected by the opinion polls, will lead to policy-related changes, which the market has been hoping for.(Watch interview here)

Quick approval for infrastructure and investment projects, deregulation and subsidy reduction in certain sectors and policies to support growth in private industrial enterprise are some of the steps expected in the first few months, Mr Raychaudhuri said.

"If we get these policy shifts then we may see a much better time as far as corporate earnings are concerned...and the first signal to this will come out around the budget," he added.

Mr Raychaudhuri says the main reason behind the slowdown in capex spend in India is the high degree of corporate leverage, but an improvement in corporate sentiment will increase confidence among corporates enabling them to spend. Going back to the old trajectory of 8-9 per cent growth will take some time though, he added.

A strong political authority is needed to improve bureaucratic decision making, which will lead to clearance of policy bottlenecks, Mr Raychaudhuri says.

A Modi-led government will probably cut down on wasteful subsidies and spend that on productive areas as evident from policy action of the current Gujarat government, which is the only state that doesn't give free power to farmers, he added.

Such policies will cap inflation and give the central bank the much needed head room to loosen money supply, said Mr Raychaudhuri.

Alternative employment avenues can be created through infrastructure spending for rural workers, which will lead to reduction in employment related subsidies, he said.