Re-election Modi runs country on a fast-growth trajectory

• Prime Minister Narendra Modi wins the Indian elections but loses his absolute majority as he obtains 240 seats on 543
• Modi’s re-election ensures policy continuity and a positive outlook for the world’s fastest-growing large economy
• Government should cope with heightened ethnical and religious tensions, as well as focus on rising climate change impacts
•  India’s high domestic demand and foreign direct investments make it an attractive and safer destination for multinationals

Prime Minister Narendra Modi keeps power albeit with less support

Prime Minister Narendra Modi wins a third mandate in the general Indian elections held between 19 April and 1 June. For seven weeks, nearly one billion Indians cast their votes in one million voting stations across the entire country. His BJP party wins 240 seats on 543 in the Indian parliament, but this time fails to obtain the majority, which could weaken his policymaking. Still, Modi’s re-election opens a new five-year chapter for himself and his BJP party, making him the second-longest reigning prime minister in independent India’s history. 

Policy continuity and performing economy

This result could ensure policy continuity, certainly by maintaining the economy and foreign policy as priorities. Regarding his particular focus on the Hindu identity during his first two terms, it remains to be seen whether the electoral setback will compel him to tone it down. Modi will probably pursue the active and successful foreign policy witnessed during his second term. On the world stage, this consists in a pragmatic and strategic approach that raises India’s international profile among Western, emerging and developing countries in the context of a shifting geopolitical order. On the one hand, Modi will strive to keep friendly ties with the West as opposed to China, play an active role in the Indo-Pacific and negotiate bilateral trade deals. On the other hand, he will ensure that India is seen as the leader of the Global South, competing with Beijing.

The economy should remain another clear dividend of Modi’s rule, and large-scale infrastructure development has been a major trademark during his first two mandates. In recent years, his government has committed to ambitious goals towards economic self-reliance too. This re-election can only mean a continuation of all these positive marks. However, the strong-performing economy is still clouded by some rising risks, such as ethnical and religious tensions, especially targeting the large Muslim minority. 2023 and the first months of this year also showed how vulnerable India is to climate change impacts, such as heatwaves and droughts. Those difficulties should also be government priorities for the coming years.

Doing business with India

India has a lot of potential as the country’s GDP growth is expected to reach 6.8% between April 2024 and March 2025. The strong economic momentum is driven by robust domestic demand and aided by a gradual decline in inflationary pressure and solid economic prospects. India has also been enjoying a surge of foreign direct investments and portfolio inflows since 2023. Those foreign investments are expected to increase significantly from this year onwards on the back of India’s positive long-term prospects. In other words: India is seen as an attractive and safer destination for multinationals in their de-risking strategies away from China, amid sharp US-China rivalry and deteriorating European ties with China. There are therefore lots of possibilities in doing business with India.

Credendo’s risk classification for India is positive: its short-term political risk rating is in category 2 and its medium- to long-term political risk rating is in category 3¹ . The outlook is stable.

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¹ On a rating scale from 1 to 7, 1 being the lowest risk category.