India's New Leaders May Demand Interest Rate Cuts

The voting in India’s national election ended on May 12. With exit polls showing opposition leader Narendra Modi’s Bharatiya Janata Party winning a clear mandate over the incumbent Congress Party, the Sensex stock index hit an all-time high amid confidence the BJP would be able to form a pro-business government, but the good cheer may be misplaced.

India’s economy is still in the dumps. Consumer prices in April jumped 8.59 percent from a year earlier, the government announced on May 12. That’s up from 8.31 percent the previous month. The same day a separate survey showed industrial production fell 0.5 percent year over year in March, the fourth decline in the past six months. “The new government will be inheriting a stagflation-type situation,” says Rupa Rege Nitsure, chief economist at Bank of Baroda in Mumbai.