PM Modi to Follow 'Strongman Economics' to Revive Growth, Jobs: Ambit

Prime Minister Narendra Modi is likely to follow "strongman economics" associated with emerging market leaders such as Vladimir Putin of Russia, Recep Erdogan of Turkey, Lula Da Silva of Brazil and Kim Dae-Jung of South Korea, says Ambit Capital, a domestic brokerage based in Mumbai.. "Mr Modi symbolises India's formal adoption of this increasingly popular brand of strongman economics which taps into the emotional needs of an emotive country," says Saurabh Mukherjea, who co-authored the report for Ambit.. "Strongman economics" owes its origin to a spate of economic crises such as the East Asian crisis (1997) and the Lehman Crisis (2008), which damaged the credentials of liberal free market economics... It is not linked to any single philosophy and involves implementation of ad-hoc economic policies driven by a hypernationalistic leader, the report notes. (Read: Lehman Collapse: Six Years on India Still Feels After-Effects). Citing historical data, Ambit illustrates that "strongman economics" results in higher GDP growth and lower inflation. In Russia, consumer price inflation averaged 222 per cent over a 10-year period prior to Putin, but the average inflation during his tenure has been just 12 per cent, the report says.. Similarly, Russia's GDP growth averaged negative 5 per cent in the 10-year period before Putin, but has since risen to a respectable 5 per cent, it notes.. Based on the above analysis, Ambit concludes that the odds are in favour of Mr Modi delivering higher growth and lower inflation in his five-year tenure.. "The assumption of power by the Modi-led BJP government which has achieved a once-in-a-generation simple majority in the Lower House of Parliament is likely to be the catalytic force that triggers this wave of growth," says Mr Mukherjea.. However, like other leaders that followed "strongman economics", Mr Modi will not be able to change the constitution of India's GDP over his five-year reign, the report says. This will be because of his inability to replicate the East Asian Model of growth, which involves export-oriented manufacturing, heavy infrastructure building and urbanization, the report says.. "The East Asian Model of growth...is unlikely to be applicable to India given that India is a democracy with a federal structure which will dilute the pace and effectiveness of reforms," says Mr Mukherjea. (Also read: PM Modi's 'Make in India' Push to Drive Investments, Create Jobs). That means the share of consumption in India's GDP will continue to decline, while the share of gross capital formation and government expenditure in GDP will continue to rise at the historical pace, the report says.. What does this mean for common investors? Ambit says "strongman economics" will lead to: 1) Rise of light industrial exports and companies like Bajaj Auto, Balkrishna Industries (India's largest tyre exporter) and TTK Prestige (world's biggest pressure cooker manufacturer) will benefit; 2) Rise of aspirational consumption and companies like Supreme Industries, VGurad will benefit; 3) Share prices of "connected companies" facing regulatory/legal challenges will be headed towards zero; 4) Cyclical recovery will benefit lenders and auto companies such as Axis Bank and Eicher Motors; 5) Margins of entrenched incumbents will be under pressure so dominant players such as Hero MotoCorp, HUL will be under pressure.

PM Modi to Follow 'Strongman Economics' to Revive Growth, Jobs: Ambit

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