Hung parliament spells trouble for economy, says RBI chief

31 December 2013

The Reserve Bank of India on Monday warned that political instability after the May 2014 General Elections will drag the country's troubled economy further down; and a stable new government would be desirable.

"A potential additional source of uncertainty is the coming general elections. A stable new government would be positive for the economy," RBI governor Raghuram Rajan said in his foreword to the RBI's eighth Financial Stability Report 2013.

Warning that any political instability will lead to further erosion of investor confidence in the economy, Rajan said, "With confidence in the financial system still fragile, six years into the crisis, policy certainty is something that investors look for in the current environment."

Though the government is claiming that GDP will grow at over 5 per cent, many analysts peg it at a little over 4 per cent this fiscal.

Virtually all political experts predict a hung parliament after the elections, and Rajan's hope of a stable government seems unlikely to materialise unless some dramatic developments change the political scenario in the next five months.