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India election results: implications of a third Modi term

India’s elections delivered a surprise result, with the governing Bharatiya Janata Party (BJP) losing its majority. We expect Modi to secure a third term as prime minister, but he will be reliant on coalition partners. This should result in economic policy continuity but will curb his ability to address difficult structural challenges.

Author
Michael Langham
Emerging Markets Economist

Duration: 1 Min

Date: Jun 05, 2024

Key Takeaways

  • Indian election results on 4 June delivered a shock result, with incumbent prime minister Narendra Modi’s Bharatiya Janata Party (BJP) losing its lower house majority. 
  • The BJP won 240 seats, falling short of the 272-seat threshold needed to reach a majority. As such, Modi will now have to rely on his coalition partners to form a government, with negotiations ongoing
  • Even with a coalition, we would expect broad policy continuity; namely a continued focus on infrastructure development, expanding manufacturing, and reforms to improve India’s ‘ease of doing business’. 
  • More challenging reforms, such as agricultural or land ones, are likely to be sidelined, and fiscal consolidation may prove slower, with a greater focus on social spending.
  • As such, India should continue to be a global economic bright spot, but a likely less expansive reform agenda will ultimately dampen the longer-term growth trajectory. 
  • In the near term, some fiscal consolidation, softer household demand and tighter financial conditions should weigh on growth, which would slow from 7.8% in 2023 to 6.3% in 2024.
  • In the near term, some fiscal consolidation, softer household demand and tighter financial conditions should weigh on growth, which would slow from 7.8% in 2023 to 6.3% in 2024.

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