Eco Emerging

India : Modi heads towards a third term


The reform policies initiated since Narendra Modi came to power in 2014 are expected to continue with his very likely re-election next June. His economic performance has been positive overall, with robust growth, a strengthening banking sector, a surging investment rate and infrastructural deficiencies being reduced. However, the country is still facing many substantial structural challenges. GDP per capita is still much lower than in other Asian countries (China, Vietnam and Indonesia), the manufacturing sector is barely growing and the country fails to create enough jobs for young people, who are still experiencing very high unemployment rates.

General election


India's general election started on 19 April and will run until 1 June. The latest polls forecast that the Bharatiya Janata Party (BJP), led by Prime Minister Narendra Modi, and members of the National Democratic Alliance (NDA) will win the election for the Lok Sabha, the lower chamber of India's Parliament, and form a government for the third time running. This victory should help to maintain stability in the country and provide a platform for continuing to introduce reforms. Over the past five years, trust in the ruling coalition has seemingly increased.

In April, the alliance was only one seat short of a majority in the Rajya Sabha, the upper house of India's Parliament, which contains 240 seats in total. By contrast, the coalition only held 34.7% of the seats five years ago. Winning a majority in the Parliament's upper house would make it easier to adopt essential reforms for boosting the country's economic growth. However, their adoption may not be enough. During Modi's last term in office, some key reforms adopted by the Parliament were abandoned (such as the agricultural reform) or have still not been fully implemented (such as the labour market reform).

On the international front, India is still not particularly integrated into global trade. Structural constraints and its limited participation in free trade agreements for protectionist reasons (such as the Regional Comprehensive Economic Partnership, which includes China, Japan, South Korea, Australia, New Zealand and the ten ASEAN countries) have limited its expansion. However, the government is gradually changing its strategy. The inclusion of Indian sovereign bonds into the JP Morgan and Bloomberg indices (which will be done gradually from June 2024 for the former and from January 2025 for the latter) should increase its financial integration. On the geopolitical front, India is expected to maintain its neutral stance towards the Ukraine-Russia conflict. Under this "non-alignment" or even "multi-alignment" strategy, it can receive oil and weapons from Russia (which has been its main oil and weapons supplier), while maintaining stable relations with Europe and the United States. Its partnership with the United States was strengthened in 2022 with the Initiative on Critical and Emerging Technology framework, which aims to enhance cooperation on advanced technologies and defence. Conversely, its relations with China are still strained.

The economic performance for Modi's last term of office