India country update – September 2024

Narendra Modi, India’s Prime Minister, was re-elected for a third mandate after a campaign that proved more contentious than expected. He is the only Prime Minister, after Jawaharlal Nehru, India’s legendary first Prime Minister, to serve three terms. He will continue to lead India, however with seemingly more limited political resources he had hoped for to radically transform the country’s institutions.

There could be several reasons why Modi secured fewer seats than expected. One factor was the initial aim of 400 seats which was explained by the opposition and some hardline BJP members as a requirement to change the constitution. A second reason was dissatisfaction in the ranks of the Rastriya Swayamsevak Sangh (RSS) at seats being given to politicians who had defected from other parties to the BJP.

Despite the BJP’s loss, the victory of its National Democratic Alliance (NDA), is not to be ignored. Although he lost his outright majority, Modi still commands the confidence of his alliance. While he now relies on allies, he has not ceded any major ministries to them. Key portfolios like Home, External Affairs, Defence, Finance, and Commerce remain firmly under BJP/RSS control, unchanged from Modi 2.0.

The Indian general elections of June 2024 revealed a half-hearted victory for Narendra Modi and the BJP

• Three months after the general elections whose results were proclaimed on 4 June 2024, Narendra Modi is once again at the helm of India, after 10 years of uninterrupted power. This is the second re-election for Narendra Modi and his party, the Bhartiya Janata Party (BJP), following two landslide victories in 2014 and 2019.
• This victory nevertheless falls short of the BJP’s initial expectations, with the deception of a narrow majority. Narendra Modi had set himself an ambitious but strategic target: he hoped that the BJP would win 370 seats in the Lok Sabha, the 543-seat lower house of Parliament, and that his National Democratic Alliance (NDA) coalition would exceed 400 seats. In the previous general election, the BJP won 303 seats and the NDA 353.
• Despite six weeks of relentless campaigning – featuring 206 public rallies and 80 interviews – Modi and his allies won just under 290 seats, barely exceeding the simple majority of 272 seats and far short of the hoped-for 370. This result represents a loss of 63 seats for the BJP and its coalition partners. In this context, Modi will have the means to rule, though he will not be able to undertake the major constitutional reforms he had originally envisaged.
• Yet, N. Modi’s supporters felt that a third term in office with a large majority was within reach, given his record of stable governance, the appeal of continuity and his efforts to promote India on the international stage.

A governing alliance marked by the rise of new personalities

• The BJP’s reduced victory has made it more reliant on the continued support of two key allies within the National Democratic Alliance (NDA): Chandrababu Naidu (CBN) of the Telugu Desam Party, who was re-elected as Chief Minister of Andhra Pradesh; Nitish Kumar of Janata Dal (United), from Bihar, India’s poorest state. CBN is widely credited with transforming Hyderabad into India’s cyber capital during his previous terms, adding significant value to the NDA alliance.
• The NDA has remained cohesive throughout Modi’s past two terms. While the alliance’s influence has been limited by the BJP’s complete parliamentary majority, NDA allies have continued to be regularly consulted over the past decade.
• This is expected to be Modi’s final term as Prime Minister, as he will surpass the age of 75, the retirement age he set for senior BJP leaders. Succession planning and a focus on development will likely dominate the latter half of this term.
  • Naidu (CBN) is expected to pull the National Democratic Alliance (NDA) toward a more centrist, business-friendly agenda, focusing on developing Andhra Pradesh, which lost Hyderabad to Telangana after their separation.
  • Kumar is also expected to demand reforms for Bihar’s poor and farmers, as most farm subsidies are gobbled up by states like Punjab. Modi’s agricultural reform in 2019 failed given protests by Punjab’s farmers whose global lobby in Canada, the US and Italy pushed the government to withdraw the reforms. The Agricultural segment has not been reformed for 55 years due to political pressure from rich states such as Punjab and Bihar. Yet, over 50% of India’s population works in the sector.
• Both Naidu and Kumar are expected to demand incentives and funds for development of their respective states which may increase the burden of rural subsidies and affect spending on infrastructure.

Despite some successes and an unexpected rise, which strengthens its institutional role, the opposition remains divided and heterogeneous.

• One of the key changes of this election is that the Congress party, with 99 seats, has finally crossed the crucial 10% threshold, allowing it to claim the long-vacant position of Leader of the Opposition (LoP). This constitutional role, reserved for opposition parties with more than 10% of the seats (at least 55), has been empty for a decade due to any opposition party’s inability to cross the threshold. With the LoP now in place, there is a stronger counterbalance to the government within parliament.
• During the last political campaign, the rebranding of the opposition coalition, now known as INDI Alliance (Indian National Developmental Inclusive Alliance) – formerly the United Progressive Alliance led by Congress, the BJP’s historic rival – has worked in prompting a shift in public opinion. INDI Alliance has particularly tried to capitalize on the inter-religious tensions, condemning the BJP’s increasingly discriminatory policies toward the Muslim community. Additionally, the alliance has attempted to gain support by promising subsidies and cash benefits, a tactic that succeeded in some states like Karnataka but ultimately backfired due to the lack of sustainable economic foundations for these promises.
• This shift in power dynamics has been particularly marked in the strategic state of Uttar Pradesh, the country’s most populous with 80 MPs. N. Modi was relying on the construction of the Ram temple in Ayodhya as well as strong governance by Yogi Adityanath, BJP’s dynamic monk-Chief Minister of the state to ensure a landslide victory. But the opposition took the lead by winning 43 seats, leaving the NDA behind with just 36 seats. UP’s loss contributed to the maximum damage in the BJP’s seat tally.
• While Hinduism has been an important factor in Modi’s popularity, he also emerged as a promising solution to the former UPA government’s disunity, policy inertia, and corruption. Indeed, these issues are common, and particularly present within the INDI Alliance. As a coalition of ideologically and politically distanced political forces, INDI Alliance lacks a unified strategy for the country. What binds them is the objective of getting the BJP, NDA and Modi out of power. Despite some progress in relation to 2019, the failure of this heterogeneous alliance remains predictable.

Redistributing the fruits of growth: a huge economic and social challenge in a country where employment remains a privilege.

• Despite a robust economic growth of 7.8% in 2023-24, well above the G20 average of 3.4%, India continues to face structural challenges linked to employment deficit. The social measures implemented by the government (housing, medical care, banking access, distribution of bottled gas, etc.) have met with limited success and more needs to be done. Tax is also a huge issue as only 2.2% of adult Indians – mainly from the middle class – pay taxes.
• One of the Modi government’s significant achievements has been the implementation of the Aadhaar system, a digital ID linked to fingerprints and iris scans. Nearly 99 per cent of Indian adults are now enrolled in this system, enabling direct benefit transfers and reducing loss in subsidy delivery. This has ensured that benefits reach the intended recipients efficiently.
• However, India remains a young country and less than half of India’s 950 million working people are employed, compared with 70% in other emerging markets. Will Modi 3.0 be able to address this growing problem? While the second mandate lost time due to the handling of the COVID pandemic, the unorganized employment sectors and the agricultural sectors –which constitute most of the working population—need immediate reform, as does national healthcare.

The international assertiveness of India, whose policy of balance is delicate, also risks coming up against growing regional hostility.

• India is a founding member of the BRICS grouping; it is positioning itself as a voice of the global south while trying to keep control so that BRICS does not expand to be a China-led grouping.
• The country intends to continue to guide this heterogeneous coalition as far as possible, in a delicate balancing act. For India, it is a question of balancing its interests with those of the United States and Europe, in which it has pinned some of its hopes for commercial growth, of competing with, becoming an alternative for and coming to terms with China with whom it shares a 3400 km contentious border, and of managing Russia, from which it is seeking to decouple.
• Regionally, India is under check from China. Its main neighbour is expected to increase pressure on India in the north-east where there is a complicated chain of ethnic violence which is branded religious at times (between Christians and Hindu’s), ethnic (between Kuki e Meitei) in Manipur. There are several shades to the violence including organized crime from Myanmar and China.
• Also, Rohingya refugees fleeing from Bangladesh are expected to create tensions with Bangladesh where Modi’s ally Shiekh Hasina has had to flee to Delhi and Islamist parties have had their bans revoked. India’s traditional “two and a half wars” (Pakistan, China and internal terrorism) has become “three and a half wars” now with Bangladesh in flux.
• While India-Sri Lanka relations were notably strained two years ago, contributing to a challenging regional environment for India, it remains to be seen how the September 21st election of President Anura Kumara Dissanayake in Sri Lanka will reshape bilateral ties.

What can be expected from Modi’s third government? Undoubtedly a great deal of continuity in the expression of Indian nationalism, which is now being deployed in all fields of external influence – political, with the assertion of leadership in the global South and a policy of balance of power that comes with the modernisation of India’s armed forces; economic with the promotion of the IMEC economic corridor with Europe and the Middle East as well as its “Act East” policy focusing on the Bay of Bengal countries (BIMSTEC) and the ASEAN countries; and cultural, with the promotion of Indian culture and the strengthening of ties with the diasporas. Internally Modi’s NDA governs 19 states and 1 union territory and the INDI Alliance 8 states and 1 Union territory as of June 2024. Modis challenge is to hold on to key states while tempering the reforms and balancing India’s image globally. Maharashtra, Haryana and Jharkhand go to elections this year as do Jammu and Kashmir for the first time since the Modi government modified article 370 of the constitution and repealed the special status of J&K. The biggest challenge will be maintaining India’s growth sustainably as that is the only solution to harnessing the demographic advantage India has, a young, educated population which needs employment. Meanwhile, if this term is to be Modi’s last, he will want to leave national healthcare and social welfare as his legacy, to demonstrate what he was able to do in 15 years which the congress failed in 55 years of governance.

Marc Reverdin, Managing Director, mr@reverdin.eu

Vas Shenoy, MVS Advisors, vas@mvsitalia.com

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