An in-depth look at the impact of recent elections in two of Asia's largest economies – India and Indonesia.

The latest electoral cycle has come to a close in Asia. Despite the general trend globally for political change observed in the last few years, one of the striking aspects of these recent elections has been that the status quo has been maintained in many of the more significant votes.

Modi strengthens his power base

Narendra Modi’s BJP Party has increased its majority following seven phases of voting throughout April and May. It is the first time since 1971 that an incumbent prime minister’s party has secured an absolute majority for a second successive term.

With an effective coalition of approximately 350 out of the 542 seats in the Lok Sabha (lower house), Modi, in theory, has both the mandate and the ability to implement his manifesto promises. However, in a country of nearly 1.4 billion people – and with some significant macroeconomic and social challenges, this task may not be as easy as it first appears.

Kickstarting consumption

Modi’s election campaign focused on India working together to achieve inclusive growth with campaign pledges included doubling farmer’s incomes by 2022, making India the third-largest global economy by 2030 and spending more than US$1.4 trillion on new infrastructure.

However, a key plank of Modi’s campaigning has also been around maintaining the lower levels of inflation he has delivered since taking office in 2014 (see chart below). In this context – and given the challenges around twin deficits (current account and fiscal) – the expectation was that Modi would be more likely to promote a consumption-driven recovery than one relying on significant incremental infrastructure spending. In reality, the July 2019 budget was more skewed towards infrastructure. However, this was based on what look like optimistic assumptions for increased goods and services tax (GST) collections.

Consumer price index (India)

Source: FactSet, as of 5/31/19. Past performance is no guarantee of future results. Indexes are unmanaged, and not available for direct investment. Index returns do not include fees or sales charges. This information is provided for illustrative purposes only and does not reflect the performance of an actual investment.

In that context, unless the June Reserve Bank of India (RBI) policy rate cut succeeds, a fiscal drive to boost consumption remains likely at some stage – particularly given the recent lacklustre GDP growth figures. The first quarter of 2019 saw the lowest quarterly growth since the first quarter of 2014, before Modi was first elected, and came partly due to a wider slowdown in consumption that has been particularly acute in the auto sector.

Indian real GDP growth

Source: FactSet, as of 3/31/19. Past performance is no guarantee of future results. This information is provided for illustrative purposes only and does not reflect the performance of an actual investment.

Extra support for India’s rural population

In the pre-election period, there was plenty of rhetoric around increasing support for rural India. Indeed, a support scheme for smallholding farmers was introduced in the February 2019 budget, with all farmers owning less than two hectares given a direct 6,000 rupee (approx. US$87) transfer annually (in three tranches). The first phase of this scheme was implemented very quickly – meaning the intended recipients should have already received some form of payment prior to the start of the election. The fact this payment is both staggered and recurring (so not just a one-off electoral ‘bribe’) implies the impact should be more sustainable. However, despite the early implementation, only around half of the approximately 130 million eligible farmers have actually been identified and received payment as of mid-August 2019. Consequently, there remains a potentially significant incremental boost to rural consumption as the remainder of the scheme is implemented.

In addition to this, promises were made during campaigning around farm loan waivers and minimum income programmes (on top of the farm support scheme) – although no further progress appears to have been made on either issue.

Housing for all

India’s policymakers have grappled with India’s affordable housing shortage for some time, with the estimated gap at around 19 million – and millions more Indians projected to move to the country’s urban centres in the next 20 years

The government launched its ‘Housing For All’ programme in 2015, and increasing availability of affordable housing will be another area of focus in this new administration. However, with the BJP having promised that every Indian will have a home by 2022, significant additional action will be required.

This is an area where policy can help to drive growth (rather than just cash transfers); for example, by enacting legislation to permit banks to fund land acquisition or offering tax incentives for rental income.

Given the labour-intensive nature of housebuilding, action here would also help to improve employment rates. According to the Periodic Labour Force Survey by the National Sample Survey office, unemployment has risen to 6.1% in 2018 (of which 5.3% rural & 7.8% urban respectively), a higher level than has been seen in recent years.

What does this mean for investors?

As equity investors, there are a number of ways in which we can potentially benefit from policies outlined above. In rural areas, fast moving consumer goods companies such as Hindustan Unilever and ITC Limited both have an outstanding distribution reach that can capture consumption growth from rural consumers finding themselves with higher disposable incomes. On the property side, apart from direct beneficiaries such as the property developers, those financing the housing such as HDFC Bank, which has the strongest retail franchise in the Indian banking market, are well positioned to benefit from increased mortgage demand if more houses are built, while the likes of Asian Paints will see increased demand for decorative coatings.

Jokowi pursues his reform agenda

Joko Widodo (‘Jokowi’) was re-elected as President in April. Having won 55.5% of the vote, he now has a stronger mandate in his second term to drive his reform agenda. During his first term in office, he was forced to compromise with rival political parties in return for them backing his administration. He now has greater support from the House of Representatives, with the parties in support of him projected to control more than 60% of the seats in the legislature – although exact numbers are likely to fluctuate until final cabinet positions are agreed around October 2019.

The president’s focus is on healthcare and building the foundations of sustainable long-term economic growth. There are four areas of focus for the new Jokowi administration which are all interlinked – infrastructure, structural reforms, development of human capital and technology & innovation.


There will be a renewed infrastructure drive in Jokowi’s second term, with a proposed US$400 billion programme currently being drafted. A number of changes were made in his first administration – such as the simplification of the land acquisition process. Although enacted prior to Jokowi’s ascension to power, the prompt implementation of the legislation has significantly reduced one of the key barriers to efficient infrastructure development. Incremental infrastructure spending is likely to focus on major investment in the transportation and power network, as well as a renewed push to cut the country’s housing gap.

Under Jokowi’s plans there is a push for the private sector to play a larger role in the country’s infrastructure build out. The proposal is for State-Owned Enterprises to execute low-return projects, with the private sector being allocated the higher-return brownfield projects. However, for this to happen changes to securitisation regulations are required.

Structural reforms

Forecasts by the Indonesian government imply the country will be the world’s fourth-largest economy by 2045. However, according to a report by the Asian Development Bank, real GDP needs to grow faster than the prevailing 5–5.5% range for it to develop into a high-income country in that timeline. To achieve this on a sustainable basis, Indonesia must raise export incomes and savings by boosting productivity, thus providing further headroom for investment, and increasing longer-term capital inflows.

Indonesian real GDP growth

Source: FactSet, as of 6/30/19. Past performance is no guarantee of future results. This information is provided for illustrative purposes only and does not reflect the performance of an actual investment.

Central to this will be lowering the current account deficit, which has worsened again in recent quarters, weighing on the rupiah and consequently the ability of Indonesia to attract investment. This will involve continuing to develop the infrastructure network in order to ease the transport of goods and services between its islands, as well as boosting its exports. But Jokowi has also signalled his intention to scrap redundant government agencies and red tape which hinders investment.

Indonesian current account as % of GDP

Source: FactSet, as of 6/30/19. Past performance is no guarantee of future results. This information is provided for illustrative purposes only and does not reflect the performance of an actual investment.

Reform of the manufacturing sector is also much needed. This will involve the opening of more sectors to foreign investment and changes to its stringent labour laws. The aim is to increase the contribution from the manufacturing sector, with an emphasis on electronics, chemicals and automotive.

Implementing meaningful reform will be a challenge, but Jokowi’s stronger electoral mandate should embolden the government in this aim. Under Indonesia's constitution, presidents and vice presidents are limited to two five-year terms so Jokowi will be determined to build the foundations for long-lasting economic reform while he is still at the helm.

Improving human capital

Indonesia has a very large and growing young population. Harnessing this powerful demographic will certainly be a focus of the next five years. Reflecting this, there is already a pledge to introduce some ‘younger blood’ into the cabinet.

While Jokowi’s first term was about bridging the infrastructure gap. His second could be dominated by an attempt to improve the country’s skills base as the government aims to ensure the country has the high-quality technology platform for the future.

Also, Jokowi’s first term included many consumer-centric policies targeted at the younger cohort and this is likely to continue in his next five years. One of his campaign promises was to extend social assistance benefits for areas like healthcare and education. This includes expanding the scope of the Indonesia Smart Card programme (KIP), which currently provides free education up to high school, to include university. A better-educated population should lead to the creation of better jobs, which itself should drive an improved consumer spending environment.

Technology and innovation

Indonesia looks set to be one of the next countries to benefit from the explosion in digital technology.

We have seen increasing evidence that online retail is near an inflection point, similar to where China was in the earlier part of the decade. Its share of the retail market is currently still in the low single digits, compared with China where online accounts for over 20% of retail spend.1

Several online companies in Indonesia have attracted financial backing from overseas internet giants with very deep pockets – for example, online retailers Lazada (China’s Alibaba), Tokopedia (Alibaba, Japan’s Softbank and US venture capitalist Sequoia Capital) and Shopee (Chinese firms Tencent and

The digital innovation does not stop at e-commerce. Indonesia’s first ‘decacorn’ (a privately held company valued at over US$10 billion), ride sharing app Go-Jek, has received investment from Chinese internet companies Tencent and alongside local consumer-focused company PT Astra International, which is part of the pan-Asian conglomerate Jardine Matheson.

What does this mean for companies?

A range of companies should benefit from the reform agenda. Well-run banks such as Bank Rakyat, Bank Mandiri and Bank Central Asia will be required to provide funding for the infrastructure programme, and property developers are poised to benefit from the government’s push to address the housing deficit in Indonesia. Cement producers, particularly the two industry leaders Semen Indonesia and Indocement, should enjoy an upsurge in demand while leading toll road developer/operator Jasa Marga will benefit both from new road sections directly, but also through improved returns in their existing assets thanks to the network effect of a more comprehensive road system. The online retail industry is set to grow extremely rapidly, and although these businesses are still burning very large amounts of cash, we will watch with interest as to who will emerge as the long-term winners in this space. Online growth notwithstanding, growing consumer wealth could also benefit more established offline retailers – both for the lower-income group, with stores such as Ramayana, and also the increasingly wealthy segment who appreciate the international brands offered by companies such as Mitra Adiperkasa.


1 Source: Statista and eMarketer.


The Bharatiya Janata Party (BJP) is one of the two major political parties in India, along with the Indian National Congress.[19] As of 2018, it is the country's largest political party in terms of representation in the national parliament and state assemblies.

Consumer Price Indexes (CPI) measure the average change in consumer prices over time in a fixed market basket of goods and services.

Gross Domestic Product (“GDP”) is an economic statistic which measures the market value of all final goods and services produced within a country in a given period of time.

Real gross domestic product (GDP) is a nation's total output of goods and services in constant dollar, or inflation-adjusted terms.

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