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Businesses love a strong leader, and big businesses tend to like Narendra Modi.
“Modi has done an incredible job in India,” JPMorgan Chase CEO Jamie Dimon said at a talk in New York in April. His praise echoed the adulation that India’s billionaires routinely lavish on the prime minister at official events.
But Dimon spoke ahead of this month’s conference. electoral unrest in India, where voters aggrieved by some of Modi’s policies, including his government’s record on creating jobs, re-elected his Bharatiya Janata Party to a third term but stripped it of its majority for the first time since 2014.
Business owners are now trying to assess what a weakened Modi, more committed than before to his coalition partners and the Rashtriya Swayamsevak Sangh (RSS), the Hindu nationalist organization behind the BJP, could mean for investment, jobs and growth.
“With an emboldened opposition and a weakened Modi, Indian politics is more likely to become louder and more contentious, and companies will now have to consider political and regulatory risks in a way they haven’t had to in the last 10 years. “says Khalid Shah, analyst at Control Risks. “While his cabinet appointments indicate broad policy continuity, many of the government’s key business-friendly measures, such as land and labor reforms, may now take a backseat.”
During a decade in power, Modi governments have stabilized India’s once-shaking macroeconomy, moved hundreds of millions of people into the digital economy and made a dent in much-needed fiscal 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 agricultural reforms.
Before the election uproar, government officials had said that with a larger majority they could move forward with the reforms needed to make India a manufacturing economy, including a more flexible labor code and legislation making it easier to buy land.
Modi was later quick to point out that it was business as usual as he appointed a new cabinet that was largely unchanged from the previous one. Analysts also expect the new government to pick up where the previous one left off, likely crafting a new round of production-linked incentives (subsidies for export-focused manufacturing industries) and building on Modi’s “developed India” goal of making of the country a developed economy by 2047.
However, opposition parties would now have greater representation and feel better able to thwart Modi, analysts said, both in parliament and possibly in new street protests.
In addition to a stronger opposition, mode he could face further backlash from within his own political camp, including the RSS, which has less market-friendly economic views than Modi himself. The RSS is skeptical of India opening up its defense sector, for example, and of free trade agreements like the one New Delhi has been negotiating with the United Kingdom for more than two years.
“He will now face the normal thing that a normal politician will face in a democracy: criticism,” says Pramit Pal Chaudhuri, head of Eurasia Group’s South Asia practice. “The feeling is that he is no longer as politically invincible as before.”
The newly sworn in ministers are largely calm for now. But an indication of the direction of Modi 3.0’s business program will come when a new budget is unveiled next month. Another will come with the prime minister’s speech on August 15, independence day, when he normally makes big economic promises, as his Viksit Bharat (developed India) last year.
For now, the business environment remains publicly optimistic. Sanjiv Puri, president of the Confederation of Indian Industry, praised Modi for his “astute leadership” in a statement congratulating him on his re-election, expressing confidence that the new government “can usher in the next phase of reforms” to make the most of India’s global opportunities.
Some skeptics say that could be more difficult, given India’s return to the norm of coalition government after a decade of a politically dominant Modi. “If India didn’t see major structural reforms in the last 10 years, why will we see them now when the BJP doesn’t have a majority and needs to keep its coalition partners happy?” said one senior business commentator privately.
john.reed@ft.com