Here are some myths and their contrasting facts to help you understand the positive impact of a coalition government on the economy:
Myth 1: Reduced market returns
It is a common myth that the stock market collapses if a coalition government is formed. However, historical data says otherwise. A coalition government was formed in 2004 and ruled until 2009, when Congress was the biggest party with 145 seats. In contrast to the myth, the stock market rose by a staggering 115%. Furthermore, with UPAs second term from 2009-2014, Nifty doubled in its value.
Myth 2: GDP growth slows down
Another common myth is that if a coalition government is formed, GDP growth will slow down. GDP (Gross Domestic Product) is the total monetary value of all goods and services produced in India over a specific period. If you look at the historical GDP values during UPA 1 (2004-2209), the GDP growth was over 8%. On the other hand, the GDP growth was 7.5% during the next coalition government of the UPA (2009-1014). Although other market factors affect the GDP growth in India, the last 15 years have shown that the impact of a coalition government has been positive for the Indian economy.
Myth 3: There are no reforms
A common myth that arises after a coalition government is formed is that a coalition government does not pass new reforms as there is always a conflict between multiple parties and their leaders. Every coalition government in India has passed a major reform, starting from the 1991 liberalisation policy by the then Finance Minister Manmohan Singh. This reform is considered the most impactful in taking India to its current economic position. Furthermore, the current taxation system was passed by a coalition government in 1998. Lastly, the NDA government, under the leadership of Narendra Modi, passed unprecedented reforms such as demonetisation and GST, which have shaped India's current economic environment.
Myth 4: Businesses earn less
One of the most considerable myths about the formation of a coalition government is that business earnings are negatively impacted. However, the historical data on how Nifty has performed during coalition governments says otherwise. During UPA 1, Nifty rose at a CAGR of 18%, while during the UPA 2 term, it rose by 10%. Furthermore, corporate earnings witnessed double-digit growth under both coalition governments.