By Smera Dania

The market is a volatile space. Subject to fluctuations, it reacts rapidly to changes in the public and private sector. Of all factors, market sentiment is one principal cause. Sentiments, here, refer to consumer confidence and business sentiments. In other words, it reflects how people perceive the events taking place in an economy. Thus, they play a huge role in determining the direction in which the market travels. But what generates these sentiments?

Primarily, two major events affect a financial market in a given period. These are – the general elections and the announcement of the annual budget. Appointment of a new government brings in different ideologies pushing for different policies and reforms. India witnessed such an event in May, 2014 when the NDA government came to power ending the decade – long rule by the UPA. As the Modi government completes its two years in office, it is worth analysing the steps that were taken to improve market sentiment and how the market responded to these initiatives.

Agriculture: Slow but Steady

Employing about 50% of India’s working population, the agricultural sector has the lowest sectoral contribution to the GDP – nearing 16%.  These statistics have reiterated the need for targeted reforms to foster growth in the sector. Fragmented land holdings, inadequate storage facilities, obsolete farming techniques, dysfunctional credit markets and the overdue APMC reforms have kept the sector in shackles. Low yield due to poor irrigation practices boosted inflation. Poor harvests necessitate imports, widening the current account deficit. Additionally, an increased share of public expenditure has been focused on maintaining minimum support prices and functioning of PDS. This severely affects consumer sentiment, pushing down investments and burdening public funds even more.

Equipping farmers first, the NDA government launched e-NAM, an agro e-trading platform thereby initiating regulation of markets.

Several financial inclusion and insurance programmes like the ‘Pradhan Mantri Fasal Bima Yojana’ aimed at income stability were announced.  

During Q1 FY 2016-17, agriculture and allied sectors presented double the growth figure of around 2% compared to the same quarter in FY 2014-15. The initiatives also attracted investors from India Inc. after the announcement of a total investment of 4.5 lakh crores towards various projects. Also, various Public Private Partnership projects are now aimed at agricultural stability. Attracting the private sector at su0ch a level reflects a positive response from both the firms and the market. 

Manufacturing Reinstated

In order to promote growth, Modi government projects India as an investment destination with 3Ds – Democracy, Demography and Demand.

Manufacturing performance gap in India and China has widened over the decades. While China went on to become a world leader, India lagged by scores. In order to promote growth, Modi government projects India as an investment destination with 3Ds – Democracy, Demography and Demand. Launching of popular campaigns like ‘Make in India’ and ‘Ease of doing business’ aim at transforming India into a manufacturing hub. These directly aim at job creation, skill development and building a support structure for the secondary and tertiary sector. The initiatives have also introduced various reforms in providing an improved business environment to the underprivileged and the bigger ones alike.

The campaigns, given their aggressive promotions, started gaining momentum as they were launched. According to ‘Ease of Doing Business Rank’, India has already managed to come up from 134 to 130 in one FY 15-16. Though being a minor step up, this indicates how the world markets responded almost immediately. The total share of industries sector to GDP in the year 2015-16 improved by over 3% in a span of two years. This positive growth also reflected in market indices when Sensex went up from 26437.02 to 26626.32 in one month prior to the launch of the campaign on 25th September, 2014. There has been a surge in exports since the launch contributing to softening the CAD with the forex inflow.

Foreign Direct Investment

Foreign direct investment is one major source of capital inflow. The number of outbound trips made by the Prime Minister have been largely centred around building partners and attracting investors. Many who criticise such trips mostly miss out on the positives. The attracted capital directly reduces state’s burden of investment and diverts funds for other important issues.


Narendra Modi with the Mayor of New York | Photo Courtesy: Flikr

Along with the visits, the government has also been setting the internal environment by introducing business reforms. Relaxation of FDI norms in various sectors has boosted capital inflow over the last two years. Other campaigns, such as ‘Make in India’, have impacted the same, though indirectly. As a result, FDI witnessed a boom reaching a near $30 billion figure in April-December 2015. The influx has also stabilised the rupee and improved forex balances. 

Entering the Digital World

A participatory form of governance propels optimism in the market. Maintaining transparency in policy decisions and ensuring its reach to the stakeholders, NDA’s social media presence has strengthened investor decision making.

With digitisation being one of its prominent pillars, the BJP led government actively participates in social media. ‘India’s first social media Prime Minister’, as named by UK’s Financial Times, has constantly seen it as a platform for accountability. It reduces the accessibility gap and helps to reach out to people directly. In the past two years, there have been numerous instant tweet-helps. The government also uses this platform to provide real-time information on policies and initiatives, while allowing for feedback. This, in turn, improves policy appraisal and maintains consumer confidence. A participatory form of governance propels optimism in the market. Maintaining transparency in policy decisions and ensuring its reach to the stakeholders, NDA’s social media presence has strengthened investor decision making.

Ending Note

Right from the announcement of Modi’s candidature to each of his foreign visits, markets have continued to act vigorously. On 16th May, 2014, when Narendra Modi was elected as the next Prime Minister, the NSE Nifty Index touched an all-time high of 7,552.60 and closed the day at 7,203 with a gain of 1.12% and a record turnover of Rs. 21,057.07. Similarly, throughout the election campaign, the manifestos projected BJP as pro-reform and investor friendly. Various proposals focussing on industrial growth, alleviating poverty, and economic growth, built optimism about future in people, leading to a rise in the market.

Based on improved business culture and promotion of Make In India, one can conclude that the NDA has worked positively towards market sentiment. However, sentiments are one part of the bigger picture. There are still thousands who remain unbanked. Financial literacy and participation are skewed towards the rich and privileged. Economic opportunities have their tints of bias and thus, a gap persists.

Enabling more citizens to participate will help the economy achieve higher limits. Reform, thus, has to target all that strengthens the ecosystem.

Smera Dania is a liberal arts student at Ashoka University, majoring in Economics. The analytical and practical approach of the subject has always intrigued her. She has also interned at Ministry of Skill Development and Entrepreneurship, gaining greater insights into real world economics.


  1. “Agriculture”. India in Business, Ministry of External Affairs, October 2015. Web.
  2. “Ease of Doing Business in India”. Doing Business, n.d. Web.
  3. “Economic Survey 2015: Growth in agriculture remains a worry, says Ashok Gulati”. The Economic
  4. Times, 28th February 2015. Web.
  5. “Financial Inclusion”. USAID, 21st June 2016. Web.
  6. “Foreign Direct Investment”. IBEF, June 2015. Web.
  7. Ramani, Srinivasan. “I ask world leaders not to avoid social media but to connect to it”. The Hindu,
  8. “World Bank retains 7.6% growth rate for India in 2016-17”. Business Standard, 20th June 2016. Web.

Featured Image Source: Passel

Fresh insights delivered to your phone each morning. Download our Android App today!

Posted by The Indian Economist