The spotlight continues to shine on alliance politics and the drive to sustain robust economic growth
The latest Economic Survey, published in July, projects 6.5-7.0% GDP growth in fiscal year 2024/25 (April-March). This would keep India among the top economic performers globally. Regarding politics, Prime Minister Narendra Modi won a third straight term at this year’s general election, but his ability to command a majority in parliament’s lower house now rests greatly on the support of two key allies of his Bharatiya Janata Party (BJP).
What next
Strategic summary
- The BJP’s top partners are unlikely to contemplate abandoning Modi.
- GDP growth in 2024/25 will probably be in line with the Economic Survey’s projection.
- Easing tensions with Ottawa will be a major diplomatic challenge.
Analysis
The April-June parliamentary polls resulted in an underwhelming victory for the BJP-led National Democratic Alliance (NDA). The coalition’s majority in the lower house was sizeably reduced and the BJP lost its single-party majority.
The NDA parties which Modi is relying on the most are:
- the Telugu Desam Party, led by N Chandrababu Naidu, chief minister of Andhra Pradesh state; and
- the Janata Dal (United), led by Nitish Kumar, chief minister of Bihar state.
The prime minister could in theory afford to lose one of them but not both, as that would deprive the NDA of its majority.
Politics
The BJP’s increased reliance on partners is a source of concern for the party, but the NDA is not at immediate risk of unravelling. Naidu and Kumar will want to avoid any action that could destabilise the government. Each recognises that having his party in the ruling coalition strengthens his hand vis-a-vis opponents at state level (see INDIA: Budget reflects pressures of alliance politics – July 30, 2024).
Legislative assembly elections are due in the National Capital Territory of Delhi in early 2025 and Bihar towards the end of the year.
The Aam Aadmi Party (AAP) currently rules Delhi. The BJP may struggle to overturn its large assembly majority.
AAP is a member of the INDIA (Indian National Developmental Inclusive Alliance) front, which also includes the main opposition Congress party.
The Bihar elections will probably be especially hard-fought. The BJP is currently the largest party in the state government, but even if the NDA wins and Modi’s party retains a larger assembly presence than Kumar’s, it is unlikely to try to wrest the chief ministership from Kumar, given the situation at the federal centre.
The BJP will be determined the show that it retains considerable support across the country.
Victory in last month’s Haryana legislative assembly elections was a boost for the party. The BJP secured a third consecutive term in the state and regained the single-party majority it lost in 2019, even though exit polls projected a sizeable Congress majority.
Legislative assembly elections will be held in two other states this month: Jharkhand and Maharashtra. Jharkhand will go to the polls in two phases, on November 13 and November 20. Voting will take place in Maharashtra on the same day as that second phase.
The results should be declared on November 23. Favourable outcomes for the NDA would make it easier to preserve alliance unity heading into 2025 (see INDIA: Modi’s party will be confident about polls – October 14, 2024).
Economy
The country’s GDP growth record reads favourably. According to government data, GDP grew by 8.2% in 2023/24 and 6.7% year-on-year in the first quarter of 2024/25.
Several BRICS countries are among the world’s largest exporters of grains, leguminous crops and oilseeds. The idea was welcomed in the Kazan declaration, which added that trading on the new exchange could be expanded to other agricultural sectors.
However, experts argue that establishing a fully operational commodity exchange will be difficult. The new exchange would have to compete with more technologically advanced grain exchanges already functioning in four other BRICS countries (Brazil, China, India and South Africa).
As a result, the BRICS Grain Exchange is currently only an idea. What business model is being proposed, which commodities will be included, in what currencies trades will be denominated and the expected implementation timeline all remain unclear.
Still, elevated consumer price inflation — including for food — and signs of high youth unemployment and weakening consumer demand are causing concern. The recovery from the pandemic-induced economic hit has been uneven, with certain sectors and large sections of the population left behind.
According to Japanese financial services firm Nomura, retail sales growth in the recent festive season was 15% year-on-year, compared with 32% in 2023 and 88% in 2022.
The government may respond to the malaise by introducing new welfare measures or at least rebranding old ones, including those partially financed by state government resources.
The adverse trends are seemingly reducing the appeal of Indian stocks among foreign investors. In any case, there have long been concerns over Indian equity valuations, even during times of high market confidence (see INDIA: Market confidence will remain robust – June 26, 2024).
In October, foreign investors withdrew more than USD11bn from the Indian stock market. If capital flight accelerates and foreign exchange reserves consequently fall, the rupee could be destabilised.
International relations
Building India’s regional and global influence will remain a priority in foreign policy.
Relations with China should be less strained, although mistrust between Delhi and Beijing will persist. The two sides recently agreed on an arrangement designed to end their long-running border stand-off in the western Himalayas (see INDIA/CHINA: Mistrust will endure despite key step – October 28, 2024).
India-Pakistan ties should also be less tense. Foreign Minister S Jaishankar last month became the first Indian minister to visit Pakistan since 2016, although this was only to attend the latest Shanghai Cooperation Organisation summit and there were no bilateral engagements.
Delhi will continue to insist that there can be no meaningful dialogue until Islamabad prevents Pakistan-based militant groups from threatening India.
Modi’s administration will keep working to build rapport with Bangladesh’s interim government, formed shortly after Sheikh Hasina resigned as prime minister and fled the country under pressure from popular protests. A problem for Delhi is that many of Hasina’s detractors express resentment of India, claiming that its support helped shore up her position while she was in power (see BANGLADESH: Achieving stability will be a struggle – August 7, 2024).
Repairing the damage to India-Canada relations will be tough. Moreover, Delhi may be uninterested in making much effort to do so while Canadian Prime Minister Justin Trudeau remains in office.
In 2023, Ottawa alleged Indian state involvement in the killing of Canadian national Hardeep Singh Nijjar, a supporter of Sikh separatism in India, in British Columbia. Around the middle of last month, Canada and India announced tit-for-tat diplomatic expulsions after Ottawa linked Delhi to a “targeted campaign against Canadian citizens”. Towards the end of October, Ottawa alleged that Indian Home Minister Amit Shah was behind this campaign.
Delhi strongly denies Ottawa’s accusations.
This strident pushback contrasts with its more cooperative approach towards US authorities investigating a similar controversy. The US Justice Department last month charged a former Indian intelligence officer with directing a foiled plot to assassinate a US-Canadian citizen, another Sikh separatist, in New York. In November 2023, it charged another Indian national in the case.
Delhi has a high-level enquiry committee examining the matter. Committee members met US officials in Washington last month.
The difference in response is partly because of the details the US authorities have provided and the less confrontational way Washington has broached the issue. Another factor is almost certainly India’s reluctance to jeopardise its ties with the United States.
The Indian-US partnership will continue to grow. Modi yesterday phoned Donald Trump to congratulate him on his victory in the November 5 US presidential election.
