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Modi’s Historic, Sobering Elections and His Economic Challenge

The third term win for Indian Prime Minister Narendra Modi was an unsurprising result, but the loss of Parliament seats means his party will need to work with a fragile coalition government to enact polices effectively.

It was always expected that Narendra Modi and his party, the ruling Bharatiya Janata Party (BJP), would emerge from India’s marathon six-week election process back in power. And indeed, the BJP and its allies won enough seats in Parliament to form a new government, and Modi will again be the prime minister for a third term. Modi’s re-appointment is historic—no Indian prime minister since Jawaharlal Nehru has ever won three consecutive terms.

However, what was unknown was the size of the mandate the Indian electorate would hand Modi and the BJP. And Indian voters have now spoken—far from increasing its number of seats in Parliament and securing a majority on its own, the BJP lost a significant number of seats, decreasing its total from 303 seats in the 2019 elections to 240. This means that the only way the BJP can form a government is with the help of smaller parties in a coalition alliance. Conversely, the opposition Congress party increased its number of seats in Parliament from fifty-two seats in 2019 to ninety-nine seats this election. This presents several challenges for the BJP, which will have to now negotiate with its coalition partners to govern effectively.

The biggest governing challenges relate to the economy. Modi’s third-term government will preside over an economy whose growth rate has raised expectations around the world. In 2023, that rate was 6 percent. Furthermore, India has been hailed for its youth bulge and the potential boon of its demographic dividend. Last year, India surpassed China to become the most populous country in the world with 1.4 billion people, and, unlike China, its population skews young. This, combined with China’s slowed economy and aging population, means that globally, India is now seen as the potential economic superpower to court. Successfully harnessing India’s large number of young people—more than 50 percent of its total population is under the age of thirty—is key to maintaining this economic trajectory. Yet India’s unemployment rate has remained stubbornly high. In 2023, the unemployment rate among youth ages 20–24 was a whopping 44.9 percent and the overall unemployment rate stood at 8.7 percent. This could be an important reason for the BJP’s electoral setback, and presents an issue for the new governing coalition that takes office.

Research shows that as more Indians enter the workforce the government will need to create around 115 million jobs in the next five years. But India’s growth is driven more by services than manufacturing. This means that unlike job creation in manufacturing industries, which can employ low skilled workers, the government has to create more jobs in the service sector. This prioritizes highly skilled labor in a country where the education system beset with quality issues and in need of intense reform is churning out graduates who do not have such skills. It also means innovatively creating low-skilled manufacturing jobs in high tech industries the government has pushed such as semi-conductor chips and cellphones. Furthermore, the share of female participation in the labor force is less than 30 percent (compared with over 70 percent for China). Increasing the number of women in the workforce needs societal and structural reform. Compounding these challenges, India is in need of forward-looking demographic policies. Despite the youth bulge, India’s fertility rates have been falling dramatically and its population is currently trending below the replacement rate. An aging population is expected to emerge in the next decade or two. This will have implications for labor force participation as well as the education and health care systems.

Another challenge relates to India’s foreign relations. Modi and the BJP have massively traded on his reputation of popularity and his credentials as a devout Hindu nationalist with a new vision for India. Both of these have now received a setback. In a particular shock, the BJP lost Uttar Pradesh, a politically significant state and the heart of the Hindi-belt from which the BJP draws its support. It is also home to the city of Ayodhya where Modi, with great fanfare, inaugurated the new Ram temple in January. While India’s relationships with its major partners, such as the United States and France, transcend Indian party politics and are not expected to change, there is little doubt that Modi’s stature of invincibility as a leader of a rising power and a community of Global South nations with a large mandate has been diminished abroad.

It will also be a challenge for the BJP to navigate and prepare for a post-Modi future. The party is now indelibly tied to the image of Modi who is a gifted politician, remains a popular figure in the country, and could be the reason the BJP is even able to form a government. This setback suggests that without Modi—currently 73 years old—and adequately prepared succession, the party may struggle to mount a comeback.

Finally, the state of Indian democracy under the BJP has been the subject of much debate. The BJP coalition now includes regional parties – such as the Telugu Desam Party (TDP) and Janata Dal (United) (JDU) that do not share their vision of Hindu nationalism, and have mercurial leaders with their own political agendas. What this means for the Indian political system remains to be seen.

Source: CFR

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