Stockholm (Ekonamik) – India’s Prime Minister Narendra Modi is set to return to power with a strong mandate, following the final tally of the 6-week long election to be released later today. Official estimates (as of 12.00 GMT) project that the ruling BJP and its National Democratic Alliance (NDA) coalition of allies set to win over 340 seats – well beyond the majority needed in India’s lower house of Parliament’s 543 elected seats.
The leading opposition Congress Party was set to win less than 100 seats, dealing a decisive blow to the coalition led by Rahul Gandhi and cementing Mr Modi’s rule, following a shaky economic performance since his election in 2014 that voters nevertheless decided to stick by.
The projected results outperform even the overwhelmingly positive exit polls for Mr Modi. The vast majority of exit polls (13 of 14) had suggested a BJP-led coalition would win, indicating that the BJP-led NDA would likely take over 300 seats, comfortably ahead of the 272-majority mark. The opposition Congress party was forecasted to win around 118 seats, with the rest of the parties tallying 120 seats. As such, Mr Modi’s mandate will have been further strengthened, even as economic policy going forward remains unclear.
Markets had already celebrated the exit polls, and are sure to further welcome developments. “Market[s have] given a thumbs-up to exit poll numbers. Sentiments have turned around drastically and the benchmark indices can gain 5-8 per cent more from here over the next few weeks if the final election outcome is in line or even better than exit polls,” said Gaurav Dua, Senior VP and Head of Strategy and Investments, Sharekhan by BNP Paribas.
India’s benchmark BSE Sensex jumped over 200 points to hit a record intra-high day of 39,565.82 early Tuesday as investors celebrated the exit poll outcome. AXA Investment Managers’ Macro Insights expected that “with PM Narendra Modi’s likely return to office, we expect he will act on his promises to continue with GDP expansion via faster infrastructure investment by cutting the cost of capital and in the meantime push for job creation.”
But job creation remains elusive, and Mr Modi’s attempted reinvention of India’s economy did not produce the promised results in his first term. The country is dogged by unemployment, particularly among youth and in the agricultural sector, with the unemployment rate hitting a 45-year high of 6.1% in 2018. India’s GDP is projected to grow by 7.1% in 2019-2020 according to the 2019 United Nations World Economic Situation and Prospects report, down from its January estimate of 7.5%.
Mr Modi’s previous initiatives, such as his 2016 anti-corruption “de-monetisation” programme that invalidated most of India’s bank notes and the failed attempt to amend the Land Acquisition and Rehabilitation Act, though welcomed by foreign investors as signs of Mr Modi’s economic reformism, ultimately hurt the economy.
According to Vivek Dehejia, a Senior Fellow in Political Economy at IDFC Institute, a sustainability think tank, Mr Modi exhibits a “lack of ideological core”, at least in terms of economic policy, which in turn pushes him towards the kind of sectarian nationalism and polarisation which has been Mr Modi’s calling card this election (and largely since the failure of his proposed economic policies).
“No matter who emerges the winner on May 23, the nation that wakes up to a new government the next day will be one whose economy and political institutions are in significantly worse shape than the state of affairs Modi inherited five years earlier, and, what is even worse, where social harmony has frayed dangerously to an extent reminiscent of the tumultuous early 1990s,” Mr Dehejia said, in reference to Mr Modi’s divisive rhetoric and policies favouring India’s Hindu majority.
While India’s economic outlook remains positive in the medium term, therefore, due to continuing growth and relative insulation from broader macroeconomic trends, and as markets welcome Mr Modi’s victory, the question remains whether he will address India’s unemployment and structural reforms in a fashion unencumbered by his nationalist tactics (and, some say, creeping authoritarianism), or whether he will abandon serious reform in the consolidation of power. Much will depend on whether he will have to depend on a coalition to govern.