In a surprise result (perhaps the first of many in the coming few months) Narendra Modi’s BJP party failed to win an outright majority in the Indian General Election. Despite this, with the support of coalition partners, Modi was appointed as Prime Minister for a third term.

For the past decade Modi has been able to aggressively push through his own agenda, transforming the Indian economy. At the forefront of his policies has been the ‘Make in India’ programme which has supported the development of domestic manufacturing. Now, forced to work with his National Democratic Alliance (NDA) coalition partners, Modi’s approach will necessarily be more consensual.

However, that is not to say that there will be any major changes to the direction of his economic policy. His coalition partners are made up of regional parties which seem more interested in ensuring government investment and special status for their own states, rather than rolling back Modi’s style of interventionism. Worries about jobs, inflation and costs seem to be at the heart of Modi’s waning popularity and so his new government is likely to double down on the programmes designed to stimulate the economy, implemented during previous terms.

Markets reacted very badly to the news that BJP had lost its overall majority. In particular, the industrial conglomerate, Adani Group, lost about a fifth of its value immediately after news of the election result was broken. Adani is present in the logistics and supply chain sector through its subsidiary, Adani Ports and Special Economic Zone. Once it was clear that Modi would return to government propped up by coalition partners, however, the stocks rallied. To many in opposition this showed the unhealthily close links between parts of ‘big business’ and Prime Minister Modi. As the opposition leader is quoted as saying by news agency, Nikkei, “If you have looked at the Adani stocks, Adani is correlated with Modi. If Modi falls, Adani falls.” Others believe that the volatility in the markets is more related to concerns over whether Modi will be able to push through economic reforms and infrastructure investment given his weaker position.

In short, it seems that the Indian government will continue on its course of supporting and protecting key sectors in its developing economy. The aim has been to build out domestic supply chains and reduce dependence on China. Western partners have been supportive of this approach as it also provides them with an alternative low cost, large scale labour market, particularly important given tensions between China and the West.

What is not so welcome are the barriers being placed on the imports of Western goods and investment. India under Modi will continue to follow its historic position of non-alignment, an approach which has seen it at odds with many in the West, especially over its links with Russia. More positively, investment in transport and ICT infrastructure is likely to remain a key policy goal, meaning that logistics links will improve, benefiting both India and its overseas partners.

Author: John Manners-Bell

Source: Ti Insight

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