Columbia Threadneedle: India and Indonesia: assessing the impact of 2024 elections

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Emerging Markets

Over the last decade, leaders in Indonesia and India have capitalised on their popularity and successfully enacted reform policies that have boosted long-term investment and exports.

13.02.2024 | 07:05 Uhr

Key takeaways:

  • Over the last decade, leaders in Indonesia and India have capitalised on their popularity and successfully enacted reform policies that have boosted long-term investment and exports.
  • Market scrutiny will intensify into the elections for fear of policy reversal. Indonesia’s two term limit means a new incoming president and in India, 26 opposition parties have formed an alliance against Prime Minister Modi.
  • Despite uncertainty we expect the upcoming elections to preserve the economic policy status quo and reinforce both countries rise in global growth contribution and their role in geopolitics.

In Indonesia, the incumbent President Jokowi is ineligible for a 3rd term while the leading contender- Defence Minister Prabowo Subianto – remains accused of human rights abuses in the past. In India, Prime Minister Modi is popular but 26 opposition parties across states have formed an alliance to oust him from power. Competitive populism will likely be a theme into both elections. Overall, however, it is likely that the uncertainty associated with the elections will be transitory.

Implementation of structural reform should continue regardless of the next leader’s popularity.

This is important as positive structural reforms over the last decade have seen both India and Indonesia’s contribution to global growth rise. Both countries have relatively young and large populations – a characteristic that’s set to grow in importance as China’s contribution to global growth wanes. Indeed, India overtook China to become the world’s most populous country in 2023. The International Monetary Fund (IMF) estimates that more than half of global growth will be concentrated in China, the US, India, and Indonesia over the next 5 years. Within this, India and Indonesia will contribute 13% and 3.6% global gross domestic product (GDP) growth respectively. China’s contribution is estimated at 22.6%1. Industrial policy reform by Indonesia’s Jokowi government means that the export of low value raw commodities such as oil, nickel and more recently copper has been banned since 2014. This policy was designed to encourage exports of higher value-added finished products. Accompanied by an expansion in infrastructure investment the initiative has increased foreign direct investment (FDI). As shown in the chart, annual inward FDI reached USD45bn in 2022, near double its level of 10 years earlier (USD25bn). More recently in 2020, it passed the Omnibus Law that reformed its bureaucracy, streamlined licensing, introduced a ‚positive investment list‘ and eased labour laws in effort to make the country more competitive globally2.


Source: Bloomberg, Jan 2024

India’s Modi government introduced the Production Linked Incentive scheme to encourage strategic sector investment, digitalization of application and ownership databases under a single national window, alongside an increase in infrastructure investment. The scheme allowed India to leverage on the evolving global supply chain. For example, Apple and its suppliers finally started manufacturing products in India during 2017 (Apple has been in China since the 1990s). Annual inward FDI peaked in FY22 at USD56bn, double that of USD27bn in FY13 pre-Modi’s government. Inward FDI has moderated to USD41bn in FY233.

As emerging market investors, we believe that upcoming elections won’t interfere the positive investment stories. Despite increased uncertainty and negative political headlines in the near term, policies are unlikely to diverge significantly enough to change the positive course both countries are on as they benefit from the positive reform enacted over the past decade.

1 Source: IMF, January 202
2 Source: Indonesia Investment Coordinating board, January 2024.

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