India’s Election Shock

What happened?

India’s election results have taken everybody by surprise. They were certainly not in line with expectations for political continuity. In 2019, Narendra Modi’s Bharatiya Janata Party (BJP) was re-elected with an overall majority in parliament of 303 seats and a decisive mandate. In 2024, India’s general election results suggest that the BJP will win around 240 seats*, well short of the 272 needed for an outright majority.

Given that the National Democratic Alliance, which includes the BJP and its two main allies, is still the biggest elected group, we expect that the BJP, being the largest party in the group, will form the next government. Modi has secured the backing of BJP’s two key partners, the Telugu Desam Party and the Janata Dal (United) party but it is potentially a fluid situation. The BJP has the ability to offer far more money, stability, and also power sharing to its coalition partners than the opposition. However, what will ensue is likely to be some significant political jockeying between elected parliamentary members.

What does it mean for economic policy?

Over his decade in power, Prime Minister Modi’s focus was on infrastructure development in India. Economic growth was led by gross fixed capital formation while consumption growth came down dramatically. For fiscal year 2024, for example, consumption growth was only 3% to 4%. In simple terms, post-COVID, the economic recovery in India has been K-shaped, with some sectors and socio-economic groups bouncing back while others have struggled and experienced a loss of savings, particularly citizens on lower incomes and those in rural areas.

“We think there will be more populist policies going forward to drive consumption while infrastructure spending is likely to take a breather”