The results are in, and India has a new government: an overwhelming majority formed by the right-of-center Bharatiya Janata Party with its leader, Mr. Narendra Modi, as the new head of the country. Modi is a polarizing figure: Many love him (sales of Modi masks have skyrocketed during the election period); others hate him. Almost all of India is waiting anxiously to see whether Modi will deliver on his election promise of duplicating the economic boom he orchestrated in the western state of Gujarat, using pro-business, free-market policies. He officially takes the oath to become prime minister May 26.
Some regard Modi as India’s Margaret Thatcher or Ronald Reagan with his talk of trickle-down wealth. Others see him as an Indian Shinzo Abe, the current prime minister of Japan and a fan of Modi. Critics, however, warn that Modi, with his charisma and power grabbing, could end up being more like Russia’s Vladimir Putin.
The reality is that he’s more likely to end up as the new Indira Gandhi, the no-nonsense Indian leader who forcefully reconstructed the Congress Party and became India personified with the slogan: “Indira is India.” That’s not too dissimilar to the slogan that Modi rode to power on: Ab ke baar, Modi sarkaar. (“After this, Modi will be the government.”) But even with his majority victory, Modi will have to grapple with elements in his own instinctively right-wing, nationalist party as well as demands from the Faustian pact he struck with the ultra-right party RSS during the campiagn to achieve the economic growth India requires.
Like or loathe him, most Indians agree that he has changed the dynamics of Indian politics and transformed the world’s largest, British-inspired parliamentary democracy into a U.S.-style presidential election of personalities. Over 815 million eligible voters were, effectively, asked to vote for Modi, not for the party. And the BJP prepared a marketing war chest that exceeded a reported $850 million, breaking all previous spending levels in India.
But politics aside, what does the election mean for business in Asia’s third largest economy?
Here are five thoughts:
- Investments: Foreign investors, betting on a Modi victory, have already poured more than $16 billion into Indian stocks and bonds in the past six months and now hold around a quarter of listed equities—a stake valued by Morgan Stanley at almost $280 billion. Until Modi, foreign companies, such as Vodafone and BP, had seen investments suffer because of the policy paralysis affecting the government. Vodafone has found itself embroiled in repeated regulatory disputes, while estimates of the value of BP’s more than $7.2 billion investment in offshore gas have fallen sharply in the face of production declines. For Modi, the challenge will be to keep in check his party’s nationalistic, isolationist instinct and policies that have already worried big-retail investors, such as Walmart, Tesco and Carrefour.
- Jobs and growth: With a fast-growing population of nearly 1.3 billion, the country needs to create a million jobs every month just to employ young citizens reaching working age. That number doesn’t even address the backlog of unemployed and underemployed youths, or provide for those migrating en masse from rural to urban India. India sees 10 million people coming out of colleges every year, and the economy needs to achieve 7 percent to 8 percent annual growth to create enough jobs for them. While Modi had pledged to increase employment, attract investment and accelerate governmental decision-making during the campaign, it will be a tough task. The BJP’s focus has been on generating technology jobs and expansion of big data academies to help boost the technology, healthcare and manufacturing sectors and foster a new generation of consumers.
- Manufacturing: In one of his rare media interviews during the election campaign, Modi outlined his manufacturing-centric agenda: “To restore the health of the economy, a number of steps need to be taken. The first and the foremost will be to bring back the focus on infrastructure and manufacturing sector…. that is where jobs are generated… The next war that is going to be fought globally is the ‘jobs war’. We must prepare our country to face that challenge.” In fact, Modi is facing a manufacturing base that is actually shrinking, rather than gearing up to employ the tens of millions of young workers heading towards its labor market over the next decade. India’s economic performance remains weak with recent figures showing industrial output slowing during March and falling over the course of the last financial year as a whole.
- The Rupee: India’s currency recently hit an 11-month high against the U.S dollar and has been one of the best-performing emerging market currencies this year. According to Reuters, India’s central bank has been buying U.S. dollars to prevent the rupee strengthening too much. The strong rupee should make the country more attractive to foreign investors and signals optimism about the Indian economy. However, the rising rupee also means rising export prices, and exporters have begun to express concerns about whether this will hurt sales of Indian products overseas.
- Foreign relations: The new PM remains persona non grata in most countries following charges of his role in one of post-independence India’s worst communal, predominantly anti-Muslim riots in 2002. In 2005, the U.S. State Department revoked his travel visa on the grounds of human rights violations during the riots, and Modi has said he won’t apply again. He also doesn’t hold visas for most countries, including the U.K. and most E.U. nations. There is a suggestion that he may favor better relations with Japan, China and Southeast Asia over repairing ties with the West. Then there’s the question of the Hindu nationalist BJP’s position on its predominantly Muslims neighbors to the West, such as Pakistan and Afghanistan. But Modi may allow India’s dependency on Middle Eastern energy sources to overrule political, ideological positions.
For now, major towns and cities, including Delhi, the BJP power base, will no doubt echo with Chinese imported firecrackers and brass bands late into the night, and despite the obvious challenges ahead, most of India will celebrate and hope for a better future.