Optimism is based on two factors. First, as chief minister of Gujarat, Modi has created what is seen as a business-friendly environment - reflected in the substantial financial support given to him by Indian corporates. Second, the excitement stems from the election of a majority government. Successive governments have shirked - or been unable to implement - difficult decisions because of their reliance on more dirigiste coalition partners. The need to appease coalition partners has also led to a growth in the number of ministries – 71 MPs were ministers in the previous government. With overlapping responsibilities on key issues such as energy and water, coherent policy-making was impossible. A stronger government should be able to streamline government, and to take the tough decisions needed to introduce a range of reforms to stimulate India's economy.
Modi's success appears stunning, adding 166 seats from its result in the previous election, and gaining seats in areas in which the BJP had never previously been popular (although, it is worth noting, winning only 31 per cent of the popular vote). The outcome clearly seems to reflect a change in India. The approach of Congress and most regional parties in providing hand-outs to marginalized groups has been rejected, particularly by younger Indians, in favour of a focus on economic growth per se. At the same time, the BJP clearly benefitted from the lacklustre campaign of the Congress Party.
But his greatest success was in the populous northern states of Uttar Pradesh and Bihar. The BJP won 72 out of 80 seats in Uttar Pradesh (one-quarter of its total seats), and 22 seats out of 40 in Bihar. A number of these seats are three- or four-way contests, and Modi's campaign here included an element of caste appeal. While many moderates supported the BJP for its economic appeal, Modi will have to meet the demands of his hard-line supporters.
Initially a Hindu hardliner, Modi has reinvented himself over the past decade as an efficient and competent manager. Yet his election campaign contained both promises of good governance with more hard-line policies. Modi has mooted a ban on beef exports (India recently became the world’s leading beef exporter) which would provide a relatively symbolic nod to his Hindu nationalist supporters. But if the expectations of moderates (and foreign business) are to be met, the Hindu nationalist element will have to be secondary to the economic agenda. Questions over social cohesion will remain until his policy priorities are more fully mapped out.
Implications for the UK
For the UK, Modi’s election brings opportunities and challenges. Economic reform and governance improvements within India do not necessarily equate to removing curbs on foreign investment. But the election of a majority government is likely to remove curbs in sectors – such as insurance – in which there is broad agreement on the benefits of foreign investment. And better governance will assist those companies already operating in India. On the downside, Modi’s priorities are likely to be domestic rather than external, and his foreign policy is likely to focus on the region – and in particular on China – rather than on the West.
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