Modi’s party, the Bharatiya Janata Party (BJP), achieved 240 seats in India’s general election, falling short of the 272 needed to govern with a single-party majority (see Chart 1).1 This fell significantly short of the 323 seats projected in opinion polls.2 Nonetheless, the other parties in the BJP led National Democratic Alliance (NDA) achieved 52 seats, meaning the parties within the NDA jointly attained the necessary seats to form a coalition government. Therefore, Narendra Modi will be confirmed as India’s Prime Minister for a third five-year term.
Investment Insights • MFN
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Indian election follow-up
With Indian election results now confirmed, we thought it would be helpful to provide an update on our views as an adjunct to the recently released InFocus piece: ‘What Modi’s re-election means for India’s economy’. In this Macro Flash Note, Economist Sam Jochim evaluates the implications of the BJP’s election performance.
Chart 1. India general election results
Source: Election Commission of India and EFGAM calculations. Data as at 05 June 2024.
With the BJP being the largest party in the coalition, there should be little issue for Modi in pushing through his policy goals which were highlighted in a recent InFocus piece.3
Future policy will continue to focus on boosting the manufacturing sector, with new Production Linked Incentives possible as part of Modi’s ‘Make in India’ initiative. Infrastructure investment with a focus on clean energy is also likely to be a key pillar of the BJP’s policies for the next five years.
It is worth noting that some economic policies can be implemented as executive orders and do not require new legislation. This obviates the need for those policies to pass through Parliament. It is only State-level reforms - such as those relating to labour laws - that will need support from the NDA coalition to be implemented.
To pass State-level legislation, the BJP will now need the support of the Telugu Desam Party (TDP) and the Janata Dal United (JDU), who have 16 and 12 seats respectively in the Lok Sabha (lower house). Both parties have declared support for Modi. Policy continuity can, therefore, still be expected following the election result.
Despite the above, it remains important to think about possible risks to the outlook arising from the BJP’s underperformance in the election. While it should still be possible for Modi to pass reforms, there is a risk that the process of doing so takes longer due to an additional level of negotiation required with the TDP and JDU. In addition, Modi has never governed with a coalition before and so this is unchartered territory. However, he is a very experienced politician and so this represents a relatively low risk.
The MSCI India equity index in USD fell 6.9% on the day of the election results, with markets and analysts surprised by the BJP’s underperformance. The day after the results, the same index rose 3.8% as Modi was formally named leader of the NDA coalition.
In summary, the BJP’s election underperformance came as a surprise, but it is unlikely to change the outlook meaningfully. Narendra Modi will continue to govern India, albeit in a coalition government. While it is important to think about the possible risks arising from a coalition government, they appear unlikely to have a large impact on economic policy. Policy continuity remains likely, with a particular focus on boosting the manufacturing sector and increasing infrastructure investment, especially in clean energy. Although short-term volatility is possible, we remain optimistic on India’s market in the long-term and believe India continues to be on the right path for a prosperous future.
1https://go.pardot.com/e/931253/PcResultGenJune2024-index-htm/46t11/379310676/h/KLiL9ltkcmmfc1uHDYYsE8_6nb9bbENnB-eO2xS5yE8
2 Opinion poll data from ABP-CVoter. Data as at 16 April 2024.
3https://go.pardot.com/e/931253/5-Infocus-Modi-re-election-pdf/46t14/379310676/h/KLiL9ltkcmmfc1uHDYYsE8_6nb9bbENnB-eO2xS5yE8