Shock setback for Narendra Modi
Today’s top stories
Canada became the first G7 member to cut its main interest rate in the current cycle, lowering its policy rate to 4.75 per cent, having held it at 5 per cent since July last year.
Israeli leaders threatened to take more “intense action” against Hizbollah after an escalation in cross-border fire, increasing tensions and the prospect of all-out war with the Lebanese militant group. US President Joe Biden accused Israeli PM Benjamin Netanyahu of prolonging the conflict in Gaza.
As we reported in Monday’s DT, Russian state-controlled energy company Gazpom has been badly hurt by the Ukraine war. A new report suggests it will take more than a decade for the group to recover its lost export revenues.
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Good evening.
In a year chock-full of elections, none comes bigger than the poll in India where almost 1bn people are eligible to vote. What does the result — a much smaller than expected majority for Prime Minister Narendra Modi’s Bharatiya Janata party — indicate for the country’s future and what lessons can be learnt for the other 50-odd countries holding parliamentary ballots in 2024?
In final results confirmed overnight, the BJP lost its majority for the first time since 2014, winning 240 seats in the 543-seat Lok Sabha, or lower house, where it will remain the largest party. The opposition INDIA bloc, led by the formerly ruling Indian National Congress, performed better than expected, winning 234 seats. (Here are the details in charts.) Modi today won the formal backing of his National Democratic Alliance allies to form a government, set to be sworn in on Saturday.
The surprise result fuelled a rollercoaster ride for Indian share prices (which have flourished under Modi), with record highs on Monday as exit polls indicated a comfortable victory for the PM, followed by a 6 per cent dip before recovering ground today. Bond prices and the rupee also tumbled on the result.
Especially hard hit were companies owned by powerful billionaire Gautam Adani, whose infrastructure empire is closely tied to Modi’s development plans.
Analysts said Modi’s weaker performance might make labour and land use reforms — essential for consolidating India’s role as a manufacturing powerhouse and luring investment away from China — more difficult. On the plus side, they thought the result might go some way to curtail the BJP’s nationalistic aims after a campaign also tarred by frequent anti-Muslim rhetoric.
As with this week’s result in Mexico, where a leftwing government pulled off a much bigger than expected win, investors really didn’t see this one coming. With much tighter results predicted in other key elections — especially the US presidential vote in November — the result is a reminder that opinion polls need to be consumed with a huge dose of salt. (If you want to learn more about how this year’s elections will affect markets, try the latest Unhedged podcast.)
Although Modi will now be reliant on smaller partners, the good news for investors, says the FT Lex column, is that the broader economic growth story of the past few years looks likely to continue, underpinned by the government’s vast infrastructure investment programme.
The prime minister has set a target for the country to overtake Germany and Japan to become the world’s third-largest economy after the US and China. It is well placed, with one of the largest and youngest workforces in the world, a rapidly growing consumer market and a prime candidate for multinationals’ “China plus one” supply-chain strategies.
But despite impressive reductions in poverty, India’s income and wealth inequality is among the world’s highest. The BJP needs to address these issues if it wants to stay in power, the FT editorial board says, as well as improving education, empowering more women to get into work and liberalising markets.
“Over the next five years, a weakened Modi can still help turn India’s vast economic potential into reality,” the FT concluded, “but only if he takes the right message from these polls”.
For more on the global importance of this year’s elections, tune into chief economics commentator Martin Wolf’s new podcast series: Democracy’s year of peril: 2024
Need to know: UK and Europe economy
Tax and immigration featured heavily in last night’s UK election head-to-head between Prime Minister Rishi Sunak and opposition Labour leader Sir Keir Starmer. Sunak’s suggestion that Labour was planning a £2,000 tax bombshell was however shot down today by Treasury officials. Stephen Bush gives his verdict in the Inside Politics newsletter (for Premium subscribers).
The UK has ambitious plans for new infrastructure, ranging from wind farms to data centres, but doesn’t have the skilled workers to carry them out, say construction experts. The problem has been exacerbated by Brexit and new visa requirements, they argue.
The European Central Bank makes its eagerly awaited decision on interest rates tomorrow with analysts expecting a cut and hoping for further clues on what happens next from ECB chief Christine Lagarde.
The relationship between Italian prime minister Giorgia Meloni and French opposition leader Marine Le Pen could help determine the EU’s future direction. A Big Read explains. Here’s our film on why the far right is surging across Europe.
Russia has now knocked out or captured more than half of Ukraine’s power generation, causing the worst rolling blackouts since the start of its full-scale invasion in 2022. Moscow is also increasingly undertaking sabotage across the rest of Europe, including arson at military bases and civilian infrastructure.
Need to know: global economy
The number of central banks looking to increase their exposure to the US dollar because of persistently high interest rates has shot up, confounding calls from some developing countries to use rival currencies as reserves.
If the US retreats from its security guarantee of Europe, the consequences for global stability will be dire, says Martin Wolf in his new critique of nationalism.
Chris Giles says the US, Eurozone, UK and Japan all have reasons to be unhappy about inflation in his latest Central Banks newsletter (for Premium subscribers).
Need to know: Business
AP Møller-Maersk, the world’s second-largest container line, said Christmas shipments could create a new supply chain crisis. Disruption from the effective closure of the Red Sea has however increased freight rates, leaving the company to lift its financial guidance for the second time in just over a month.
Europe’s steel industry could miss climate targets despite billions of euros in state aid, environmental campaigners warned. Their research showed that carbon emission intensities, which measure emissions relative to output, needed to fall three times faster than current rates suggest.
The inadvertent result of rising protectionism in the US and Europe is a flood of investment by Chinese electric-vehicle makers into the world’s most important emerging markets. Read our deep dive here.
UK defence group Chemring predicted a decade of rearmament thanks to global conflicts as it reported a record £1bn in orders in the first six months of the year. Military spending around the world rose almost 7 per cent to a record $2.4tn last year, the steepest annual increase in 15 years.
The Tech Tonic podcast series on China tech continues with a discussion of how the country is turning to robots and automated factories in the face of a shrinking population and a shortage of workers.
McDonald’s, the world’s largest fast-food chain, has lost its “Big Mac” trademark for chicken products after an EU court ruling. (Beef Big Macs can stay on the menu).
The World of Work
How did Scandinavia crack the productivity puzzle? Listen to the Working It podcast.
Some good news
A gene therapy trial has enabled children born deaf to hear for the first time. More than 5 per cent of the global population suffer from disabling hearing loss, including 34mn children.
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