U.S. Markets close in 1 hr 11 mins

5 Years of Modi Government and How India ETFs Responded

Sanghamitra Saha

India ETFs have ruled the emerging market pack in the past five years. The win of market-friendly leader Narendra Modi-led Bharatiya Janata Party (BJP) in the general election of 2014 and an oil price slump did wonders for India equities. The Modi government came up with several reforms while India resorted to policy easing during this period. With the country going through another general election, it’s time to look at how India markets fared under Modi.

iShares MSCI India Small-Cap ETF SMIN emerged as the top performer (up 78.1%), followed by Columbia India Consumer ETF INCO (up 74.8%) and iShares India 50 ETF INDY (up 53.9%). This came against only 20.5% five-year gains by iShares MSCI Emerging Markets ETF EEM (read: Here's Why India ETFs Are Soaring).

Let’s take a closer look at what led this rally.

Tax Reform

The government enacted ‘the biggest tax reform’ on Aug 8, 2016, braving barriers coming in the way of a nationwide goods-and-services tax or GST. The bill got debated for long between the government and the opposition. The bill is deemed to make business practices easier and more transparent (read: What GST Bill Passage Means for India ETFs).

Oil Slump & Rupee Gain

Oil prices have suffered a lot during this phase. United States Oil Fund LP USO and United States Brent Oil Fund BNO shed about 63.8% and 53.7%, respectively. This makes a great scenario for India investing since the country is a huge importer of crude. This has allowed India to build healthy foreign exchange reserves. Reserves grew 16.9% during these five years. Market Vectors-Rupee/USD ETN INR has added about 27.9% in this time frame 6.9% losses in WisdomTree Emerging Currency Strategy Fund CEW.


On Nov 8, 2016, Modi announced note demonetization. As much as “86% of Indian currency and 12% GDP” was frozen overnight. Per the announcement, the India government withdrew high-denomination banknotes, as a crackdown on illegal money and corruption (read: India ETFs Tangled Between Note Demonetization & Trump Win). 

Consumer-Friendly Budget

In February 2019, Modi's government came up with an interim 2019 budget with 750 billion rupees (about $10.6 billion) in cash for farmers and solid tax cuts for payers in the lower rungs, perhaps to appease key voters ahead of a general election. The budget proposals lowered the tax burden for the lower middle class, by exempting people earning up to 500,000 rupees from the previous cap of 250,000 rupees. The consumer ETF INCO should benefit the maximum from the 2019-2020 budget.

Efforts for Monetary Policy Easing

India has resorted to policy easing in this timeframe, facilitating growth. Before Modi came into power in May 2016, the key rate in India was 6.50%, which spiraled down till last April when rates were near 6.0%. Then, inflation pressure drove rates to 6.5% and maintained it at that level till Dec 2018. The central bank, however, resorted to two rate cuts in 2019 with the current rate prevailing at 6.0%.

Solid Growth Story 

Between 2009-10 and 2013-14, the period during which Manmohan Singh-led UPA government was in power, India’s economy grew 6.7% per year. On the contrary, between 2014-15 and 2018-19, the Indian economy is supposed to have grown 7.5% every year, per the source.

Though IMF has reduced India’s growth forecast for the just-concluded fiscal and the next two years, estimates are pretty higher than the emerging economies bloc, developed economies, the global economy and even China. IMF’s latest projection for FY19 is 7.1%, 7.3% for FY20 and 7.5% for FY21. All the estimates are 0.2 percentage points less than the assessment made in January.