Will Modi 3.0 be good for business?

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Business loves a strong leader, and big business tends to like Narendra Modi. 

“Modi has done an unbelievable job in India,” JPMorgan Chase chief executive Jamie Dimon declared in a talk in New York back in April. His praise echoed the adulation India’s billionaires routinely lavish on the prime minister at official events.

But Dimon spoke before this month’s election upset in India, in which voters aggrieved with some Modi policies, including his government’s record on creating jobs, re-elected his Bharatiya Janata party for a third term but stripped it of its majority for the first time since 2014. 

Businesspeople are now trying to assess what a weakened Modi — more beholden than before to his coalition partners and the Rashtriya Swayamsevak Sangh (RSS), the Hindu nationalist organisation behind the BJP — might mean for investment, jobs and growth. 

“With an emboldened opposition and a weakened Modi, India’s politics is likelier to get noisier and more contentious, and business will now have to consider political and regulatory risks in a way that they have not had to do over the past 10 years,” says Khalid Shah, analyst with Control Risks. “While his cabinet appointments signal broad policy continuity, many of the government’s major business-friendly moves, such as land and labour reforms, may now be put on the back burner.”

During a decade in power, Modi’s governments have stabilised India’s once-wobbly macroeconomy, moved hundreds of millions of people into the digital economy, and made a dent in long-needed tax and other reforms. But India still faces deep structural challenges around education and agriculture. In 2021, Modi was forced by mass protests to abandon planned farming reforms. 

Before the election upset, government officials had said that with a bigger majority they could move forward with reforms needed to make India a manufacturing economy, including a more flexible labour code and legislation making it easier to buy land. 

Afterwards, Modi was quick to signal that it was business as usual when he named a new cabinet largely unchanged from the last one. Analysts also expect the new government to pick up where the old one left off, probably drawing up a new round of production-linked incentives (subsidies for export-focused manufacturing industries) and building on Modi’s “Developed India” goal of making the country a developed economy by 2047. 

However, opposition parties would have greater representation now and feel more empowered to thwart Modi, analysts said, both in parliament and possibly in new street protests. 

In addition to a more forceful opposition, Modi could face more pushback from within his own political camp, including from the RSS, which has economic views that are less market-friendly than Modi’s own. The RSS is sceptical about India opening up its defence sector, for example, and of free trade agreements such as the one New Delhi has been negotiating for more than two years with the UK. 

“Now he will face the normal thing a normal politician will face in a democracy: criticism,” says Pramit Pal Chaudhuri, south Asia practice head with Eurasia Group. “The sense is that he is no longer as politically invincible as before.” 

The newly sworn-in ministers are mostly quiet for now. But one indication of the direction of Modi 3.0’s programme for business will come when a new budget is unveiled next month. Another will come with the prime minister’s August 15 independence day speech, when he typically makes grand economic pledges, like his Viksit Bharat (Developed India) declaration last year.

For now, the mood music from business remains publicly upbeat. Sanjiv Puri, president of the Confederation of Indian Industry, praised Modi for his “astute leadership” in a statement congratulating him on his re-election, voicing confidence that the new government “can usher in the next phase of reforms” to make the most of India’s global opportunities. 

Some sceptics say that might be more difficult, given the reversion to the Indian norm of coalition government after a decade of a politically dominant Modi. “If India did not see big bang structural reforms in the last 10 years, why would we see them now that the BJP don’t have the majority and need to keep their coalition partners happy?” one senior business commentator said in private.


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