In May, Narendra Modi marked a decade as India’s prime minister. It is rare for politicians in democracies to surpass ten years in office. Voter familiarity or fatigue, along with other factors, has a way of dampening support and energizing rivals. Modi’s tenure is all the more remarkable, then, in that he remains popular, with 79 percent of Indian adults viewing him very or somewhat favorably, according to an August 2023 report by the Pew Research Center. With the world’s largest democratic exercise nearing its end on June 1—India boasts more than 950 million registered voters, six times larger than the United States’ electorate—Modi’s Bharatiya Janata Party (BJP) is widely projected to earn enough support to remain in power for a third term.
The strength of India’s economy is one reason for the BJP’s favorable position in the polls. When Modi became prime minister in 2014, India had the tenth largest economy in the world. Today, it has the fifth. So what might the world expect from a “Modi 3.0” in terms of economic priorities if the elections pan out as expected? And would this political stability mean an end to policy uncertainty?
The administration appeared to be sprinting in the lead-up to March 16, when the election’s model code of conduct came into effect to discourage policy announcements that could influence voters before the contest. On March 10, the government signed a free trade agreement with the European Free Trade Association, and on March 15 it announced a new policy to open the Indian market to the world’s leading electric vehicle companies. It also approved three new semiconductor projects, revised prices for liquefied petroleum gas, and formalized rules to implement the Citizenship Amendment Act before the March 16 deadline.
This flurry of activity could continue after the election. Modi has reportedly asked his cabinet to develop an ambitious hundred-day agenda for a third term. Assessing the BJP’s election manifesto and other signals, the following are some of the likely economic priorities for Modi 3.0.
Intensified efforts to grow India’s footprint in global value chains, including in pharmaceuticals, medical devices, electric vehicles, green energy, and electronics. The government will likely refine its incentives—including the flagship production-linked incentives—based on the experience gained in their design and implementation. Policymakers are also likely to continue their trade push, with a free trade agreement with Oman reportedly awaiting signature after the elections, and talks with the United Kingdom, the Gulf Cooperation Council, and the European Union, among others, at different stages of progress.
A third term could also involve efforts toward factor market reforms, including a revived push to see through the labor market reforms initiated in 2019. However, such reforms will require substantial political capital. Their progress will therefore be contingent on the size of the BJP’s majority in parliament and on support from state governments, which have substantial mandates over their implementation.
Continued emphasis on physical and digital infrastructure and on the energy transition. The government will likely maintain a high budgetary allocation toward initiatives to expand and modernize its infrastructure, including Gati Shakti and the National Logistics Policy. These initiatives will involve the accelerated development and modernization of highways, railways, airports, and ports.
The government will also continue building digital public infrastructure (DPI) based on the India Stack. The DPI approach for payments has enabled a rapid increase in financial inclusion. The government might next prioritize access to credit for individuals and small businesses.
While petroleum will remain a key part of the energy mix, the government is likely to maintain its goal of using green energy sources for much of India’s growing energy requirements. Policymakers will seek to continue prioritizing solar—including a massive effort to increase the use of rooftop solar in homes—as well as “green molecules” (hydrogen, ammonia, and methanol), batteries, and electric vehicles. Nuclear energy, especially small modular reactors, could be a new area of focus.
Safeguarding and empowering groups most vulnerable to economic shocks. The administration could deploy a mix of current and new programs—involving benefits, credit, skilling, and employment guarantees—aimed at women, the youth, the poor, farmers, and small-business owners. Such groups are simultaneously the most vulnerable to economic shocks, especially given global technological trends and the ongoing transformation of India’s economy, and among the most electorally powerful.
The administration has already asked the International Labor Organization to help develop a living wage framework to replace the current minimum wage approach. The government is also looking into widening social safety nets to better cover informal workers.
Further growing India’s global profile and leadership. The government will likely redouble its efforts to represent the voices and interests of the Global South and to obtain a permanent seat on the United Nations Security Council. While this might seem to be a purely geopolitical goal, there are associated economic factors as well. The government will continue to partner with like-minded nations in areas such as security, diversifying supply chains, and critical and emerging technology. Closer to home, the administration will look to build on its relationships with the governments of Bangladesh, Bhutan, Nepal, and Sri Lanka to continue growing connectivity, commerce, and other linkages in South Asia.
India’s economy is expected to become the third largest in the world in the coming years. However, the administration will likely face challenges both abroad and at home as it seeks to keep its economy growing at around 7 percent of gross domestic product per year. To name just one example, the United States and Europe ramping up their industrial policies could dampen manufacturing growth in India by limiting foreign direct investment and exports.
Domestically, even if the Modi administration returns to power with a strong mandate, there will be times of policy uncertainty. For instance, some policymakers support a more open approach to trade and others favor protectionism. Some policymakers might even modulate at times between openness and protectionism.
Such seeming confusion is natural in a large and diverse democracy with a myriad of interest groups but it nonetheless will present challenges. Additionally, perspectives and priorities will vary across different arms of government, depending on the specific constellation of stakeholders each represents. But observers would do well to focus on the overall trajectory rather than be distracted by temporary fluctuations.
Taken together, if the election manifesto and ongoing policy discussions are any indication, Modi 3.0 has the makings of a transformative term for India and the world.
Gopal Nadadur is a nonresident senior fellow at the Atlantic Council’s South Asia Center and is also vice president for South Asia at The Asia Group.
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Image: Indian Prime Minister Narendra Modi is speaking at a public rally ahead of the Lok Sabha General Election in SAI Complex Ground, South Bardhaman District, India, on May 3, 2024. (Photo by Debajyoti Chakraborty/NurPhoto.