Election Advisory Series | India


In this edition of our Election Advisory series, Aritro Sarkar and Nour Wood, business intelligence and investigations associates, discuss the emerging risks, challenges and opportunities with the recent elections in India.

India’s shock election result is a loss for Prime Minister Narendra Modi but a win for democracy – can you provide us with some context on the recent election in India?

Aritro: For sure. The world’s largest democracy just concluded its elections, where around 640 million people cast their votes to determine the composition of India’s 543-seat strong lower house of parliament, the Lok Sabha.

Going into this election, we have two main blocs, the NDA alliance, whose main party is the ruling BJP party, and the opposition INDIA coalition, with the Indian National Congress. The BJP has been in power since 2014 with Narendra Modi at the helm, presiding over outright majorities over that time.

In that time, the party sees itself as having delivered on consistent economic growth, particularly in the view of several national, big picture infrastructure projects, such as the Mumbai-Ahmedabad bullet train link, and the replanning of New Delhi’s central vista, along with new Vande Bharat rail services, and metro service and improved airports in India’s smaller cities. They’ve also attempted to talk up their digital infrastructure ecosystem, with the unified payments interface and a scaling up of the nation’s 4G and 5G infrastructure 

This time, the BJP’s message going into these elections was primarily culturally-focused, possibly to shift focus away from a relative economic slowdown, and also possibly in a bid to continue to cement its Hindu nationalist brand of politics, with a people’s mandate. As a result, the future promise that made up the campaign messaging has been more attuned to fulfilling the other aspects of the BJP’s ideological platform, a continued Hindu majoritarian brand of politics, while also projecting India as a civilizational project to the global audience.

To achieve this, the BJP has been seeking a supermajority in this election, two thirds of the Lok Sabha to be able to amend India’s constitution. They had a self-assigned target of crossing 400 seats in the lower house. There was a belief among the electorate and observers, which the BJP has denied, that this supermajority would then be used to remove provisions protecting India’s secular political architecture, enshrined in India’s constitution..

And that clearly didn’t happen. How did the BJP get this so wrong?

Nour: Clearly, voters didn’t respond well to this. While the BJP remains the single largest party in Parliament, it only has 240 seats, requiring its alliance partners to reach the requisite 273 to form a government.

What needs to be said here is that despite Modi’s rhetoric, economic policy appears to have been a much larger concern for voters than expected. The headline mega-projects failed to conceal the economic concerns that the electorate is grappling with. 

India recently hit a 100 year high for income inequality this year, making the country less equal than it was under British colonial rule. The benefits of the country’s economic growth has also not been delivered to young voters who are currently facing stark unemployment figures as a demographic. Price rises in essential commodities have also made life difficult for vast swathes of the voting population.

BJP tirades against caste and religion-based quota systems for employment and education have also turned away lower caste voters, who played a key part in losing ground in Uttar Pradesh, which has in recent times been a BJP stronghold.

These clear and present issues meant that any talk of extending BJP power, despite Narendra Modi’s own enduring personal popularity, actually meant that voters took talks of a potential supermajority as arrogance, compounded by fears of existential change.

Not to go into too much of a US perspective here, but listeners could compare this to the significant loss Republicans withstood in the 2022 midterm elections, where the party ran aggressively on divisive cultural issues like abortion and transgender rights, alienating centrist voters.

Aritro: The interesting thing about this is that this falls way short of what Modi’s BJP had predicted – a win for democracy simply because the Modi government since 2019 has been increasingly having a right-ward tilt towards authoritarianism. This pushback against Modi creates a more vibrant and representative Parliament that can check the brazen muscle of the BJP which is a very healthy development for Indian democracy, given how many have, not without reason, questioned India’s democratic credentials. 

A third, important point is that, given this result, an impact will be left at India’s biggest business houses, which have, over the last 10 years, been pro-Modi government. The Adanis, who run the Adani Group, and the Ambanis, who run Reliance Industries Limited, are generally perceived as being very close to the highest echelons of government, including Modi himself. Him doing well politically has translated into these two businesses in particular doing well commercially. When Modi was predicted to win his 350-400 seat majority, stock prices of publicly listed Adani companies went up, but when the results were actually announced, 3 days later, the prices crashed. It will be interesting to see how these two big business houses operate, in an environment that is not as politically friendly as it was expected to be, in the face of a rejuvenated opposition, and strengthened regulatory institutions.

Winning a historic third term demonstrates Modi’s popularity, however what does the loss of a majority mean for economic reform going forward?

Aritro: This is where things get interesting. People, including Raghuram Rajan, former governor of the Reserve Bank of India, have suggested that while the 2014 Modi government was more economic-reform oriented, the 2019 government was more culturally driven. 

The headline economic reforms of the Modi governments, including the introduction of the singular goods and services tax (2016), replacing the two-tier system of the sales tax and value added tax; demonetisation in 2016, did not necessarily have the desired effect, and has had plenty of detractors. So the government’s two biggest economic reforms, in a broader market-friendly tilt, have not necessarily had the desired effects. India’s major manufacturing push has also been slightly underwhelming so far, as Rajan has repeatedly argued. 

Nour: We are kind of in uncharted territory here. Modi has never been in power in a coalition government, and this is a rather blunt check on what was increasingly becoming his government’s heavy-handedness. Several of the administration’s most high-profile and controversial policies came in a very top-down way. Demonetisation in 2016 and the removal of Jammu and Kashmir’s autonomous status in 2019, both come to mind, right. With demonetisation especially, key economic advisors and even cabinet members had no idea it was going to happen and then it became official policy overnight.  

We’re not going to see something like that here, the BJP will be hamstrung by its coalition partners, most of whom will be asking for specific asks for their constituencies as a foundation for any national policy. It is also shaky ground, given that two key coalition partners, the TDP and the JDU, are not exactly extremely ideologically aligned with the BJP – the TDP has previously publicly reiterated its commitment to a secular India, while the JDU has a history of switching sides across the political spectrum. 

Aritro: The hallmark of any coalition government is more consensus-building, which diminishes the prospect of any radical economic reform being pressed through. There isn’t any major economic reform on the agenda right now, and there certainly wasn’t one on the campaign trail. Therefore overall, the market-friendly, deregulatory spirit of the Modi governments should continue. India is the largest economy in the region, and one of the largest in the world, but is also at the same time, a deeply unequal country in terms of resource division. If anything, reforms addressing this inequality might be passed through for they will be popular, and the INDIA alliance has campaigned very strongly on a social justice platform of this kind. But that would be about it. 

What next for investors and FDI in India?

Aritro: At this point, not much can be said about any fundamental changes. Modi governments have historically been FDI-friendly, and FDI has only grown in India in the last 10 years. According to Invest India, a company that operates under the Ministry of Commerce, GoI, FDI inflows were at USD 45.15 billion in 2014-15, and by 2022, it had increased to USD 83.5 billion. FDI heavy sectors are the services sector; computer software and hardware, trading, telecoms and the automobile sector.

Over the last two terms, the government has really prioritised sectors such as green energy and logistics. India has an ambitious net zero target of 2070, and has scaled up green infrastructure, particularly solar infrastructure. India is aiming to have 500 GW of renewable energy capacity by 2030, for instance. In logistics as well, the PM Gati Shakti National Master Plan seeks to create integrated logistics systems and multimodal connectivity infrastructure, across roadways, railways, waterways and airways, to ease out supply chain bottlenecks, logistics bureaucracy, and go hand-in-hand with its larger pro-manufacturing push. These initiatives, one can expect, might continue to grow, given the broad support they have across the political spectrum, particularly renewable energy. 

Nour: We’ve also seen both parties throw allegations of corruption at each other, especially in connection with these large conglomerates like the Adani Group. For the BJP obviously, there’s more fire than smoke here, even though the Congress party presided over several high-profile large-scale instances of corruption during its previous time in power. There’s no indication that any actual action will be taken here, but this may change considering the mounting pressure in the public domain from civil society actors.


Photo by ARUN SANKAR/AFP via Getty Images

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