Decoding Modi 3.0: Prospects for India’s political and economic landscape

In a comprehensive analysis of Prime Minister Narendra Modi’s potential third term, Indian political economy analyst Shankkar Aiyar discusses the numerous factors contributing to the incumbent government’s popularity and the challenges it faces. This analysis is based on the conclusions drawn from a session held with the India CEO and CFO Forums of IMA India in Pune.

A holistic agenda

Narendra Modi’s government has built on the foundations laid by previous administrations, steering India towards economic growth, social welfare, and digital advancement. Landmark initiatives such as Jan Dhan accounts, rural electrification, Swachh Bharat, and Gati Shakti have played a crucial role in bolstering his administration’s popularity. The Modi government’s strong emphasis on cultural connectivity, hyper-nationalism, and engaging the global diaspora has further consolidated its support base.

Internationally, India’s perception has been enhanced by its stable political leadership, which has attracted substantial inbound investment. Initiatives like Aadhaar have revolutionised the digitisation process, leading to efficient systems like UPI and Fastag and increasing household participation in the stock market through demat accounts. The direct benefit transfer (DBT) system has facilitated the seamless transfer of welfare spending, with a cumulative transfer of Rs 34 trillion since 2013.

Infrastructure and economic reforms

The Modi administration has made significant strides in correcting previous economic shortcomings. The implementation of the Insolvency and Bankruptcy Code (ISB) addressed the ‘twin balance sheet problem’, while the Production-Linked Incentive (PLI) scheme has boosted domestic manufacturing. A major focus on capital expenditure, particularly in infrastructure, has benefited the construction sector and public sector companies. The government has invested approximately Rs 64 trillion in infrastructure over the past seven years, with projections to double this investment in the coming seven years.

Electoral and systemic challenges

Despite its achievements, the BJP faces substantial electoral challenges. The party holds sway over 18 states accounting for 290 Lok Sabha seats, either singly or with coalition partners. However, crossing the 370-seat mark remains an uphill task, as historically, the BJP has struggled against regional parties at both state and national levels. To reach this ambitious target, the BJP must make significant gains in states like Uttar Pradesh, West Bengal, Karnataka, Telangana, Andhra Pradesh, Tamil Nadu, and Kerala.

Systemically, the Modi government has shown a tendency towards reactive rather than proactive policy-making. While it has adeptly addressed immediate challenges, it has been less successful in formulating long-term policies. The call for reservations in government jobs for primary landowning communities, the heavy reliance on agriculture for employment yet minimal contribution to national income, and the urgent need for continuous skilling of the workforce highlight areas requiring comprehensive reforms.

North-South divide and data utilisation

A widening economic gap between the North and South of India presents another significant challenge. Tax revenues are predominantly sourced from the South, while fund allocations often favour the North. There is also a critical need to leverage data for policy formulation. For instance, GST data could offer valuable insights into consumption patterns and tariff impacts, yet the government’s reluctance to share this data hinders detailed analysis and potential business opportunities.

While the Modi administration has successfully implemented several major projects and attracted significant investment through strong leadership, it must address key challenges in labour and agricultural reforms, data transparency, and regional economic disparities to sustain its momentum. As Modi potentially embarks on a historic third term, the focus must shift towards long-term policy formulation to capture India’s full potential.