Over the past decade, Business houses in India have gotten close to Cash Rich Corrupt Highly Congress Politicians defining an era of Crony Capitalism. However, such businesses men are non-competitive in nature and lack the basis tenet of Business. This model (whereby politician-promoter cliques collude to suppress competition and drive up prices of food, housing, land and other important industrial inputs) could be on the retreat as Narendra Modi is expected to takeover as the Prime Minister of India and dismantle this setup.
The NDA seems likely to address the distortions in India’s food regulations and thus reduce food inflation. The RBI Governor is keen on preventing PSU banks from being gamed by unscrupulous promoters. If he’s successful, this could lower the cost of capital in India. Furthermore, for the first time in its history, the RBI has announced an explicit inflation target. The Land Acquisition Act looks likely to be amended and this could make it easier and cheaper to buy land for industrial use. Finally, The rise of ‘check & balance’ institutions in India (such as the CAG or the Lok Pal) is making it harder for the cliques to drive the inflationary loop (shown on the cover of this note) upwards
The companies that have benefited the most from the distortions in the Indian economy over the past decade would be the biggest losers if Modi & RBI are successful in checking the corrupt practices.