India has gone to the polls. Prime Minister Narendra Modi’s Hindu nationalist Bharatiya Janata Party (BJP) even succeeded in raising its absolute parliamentary majority in the lower house of the Indian Parliament by 21 seats and now has 303 seats. This is equivalent to 56% of the 543 seats in the lower house, and has thus freed the party from its dependence on coalition partners. Modi has secured a second five-year term in office with his clear election victory and remains the key personality dominating Indian politics.
While profiting above all from the recent confrontation with Pakistan during the election campaign, positioning himself as a vigorous advocate of Indian security interests and evidently impressing many Hindu Indians in the process, he can also boast a number of important genuine political successes. After all, India has risen 65 notches in the ranking of the World Bank’s „Ease-of-Doing Business“ indicator since 2014, coming in at 77th place out of 190 countries last year.
Under Modi, India’s economy has grown by an average annual rate of 7.5% since 2014, albeit at a slower pace more recently. A new bankruptcy law has been introduced, and corruption is being curbed. The industrialization campaign „Make in India“ has become Modi’s trademark and is attracting many investors to the country. The new nationwide VAT rate is creating economic efficiency gains as it replaces many of the regional consumption taxes that used to be levied on a parallel basis and is boosting domestic trade.
Modi wants to build on the previous reforms and further modernize the economy as well as secure a high pace of growth. He has pledged major investment projects in the infrastructure area, and also aims to improve the efficiency of state administration and the payment system. However, Modi also needs to make further adjustments and facilitate land acquisition, for example, to achieve optimally-sized farm enterprises. The fight against high unemployment has also yet to be won.
With the election over, it remains to be seen whether Modi really does concentrate on the modernization process and economic reforms, and whether the fundamental Hindu rhetoric that had such a polarizing effect during the election campaign now recedes into the background. This would be crucial in order to prevent religious animosities, for example between Hindus and Muslims, from spilling over and endangering social and economic stability.
Financial markets reacted positively to the election results. If Modi pursues the course he promised during his second term of office, this reform premium can be expected to widen further. However, the fluctuation spread could well be high, given the considerable geopolitical risks still associated with this region.