As the 2014 general elections draw closer, the Reserve Bank of India (RBI) Governor Raghuram Rajan has warned that any political instability after May, post-results, will drag the already beleaguered Indian economy further down, and that a stable new government would be desirable - with opinion clearly divided among the electorate and various uncertainties adding to the pressures, it is not clear at all whether Bharatiya Janata Party's (BJP) PM candidate Narendra Modi will manage a decisive victory or things will go the way of a coalition composed of fringe parties like the SP, BSP, TD, AIADMK, DMK or others. But most analysts are clear on one result - the Congress-led UPA is history.
"A potential additional source of uncertainty is the coming general elections. A stable new government would be positive for the economy," Reserve Bank of India (RBI) governor Raghuram Rajan said in his foreword to the eighth edition of the RBI's Financial Stability Report 2013, released this morning.
Warning that any political instability will lead to further erosion of investor confidence in the economy, Raghuram 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 India's GDP growth will at over 5 per cent, many analysts peg it at a little over 4 per cent this fiscal.
The warning from RBI comes as some political observers are expecting a hung Parliament after the Lok Sabha elections.