Will Modi 3.0 have a positive impact on business?

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The business world loves strong leaders and big corporations tend to favour Narendra Modi.

“Prime Minister Modi has done an incredible job in India,” JPMorgan Chase Chief Executive Jamie Dimon said in April in a speech in New York. His praise echoed the praise India’s billionaires regularly lavish on the prime minister at official events.

But Dimon’s comments came ahead of India’s tumultuous general election this month, in which voters unhappy with some of Modi’s policies, including his record on job creation, re-elected his Bharatiya Janata Party to a third term but stripped it of a parliamentary majority for the first time since 2014.

Businessmen are now trying to gauge how a weakened Prime Minister Modi, who has become more reliant on his coalition partners and the Hindu nationalist party behind the BJP, the Rashtriya Sangh (RSS), will affect investment, jobs and growth.

“With the opposition emboldened and Modi weakened, Indian politics are likely to become noisier and more contentious, and businesses will have to consider political and regulatory risks in a way they haven’t seen in the last decade,” said Khalid Shah, an analyst at Control Risks. “His cabinet appointments signal broad policy continuity, but many of the government’s key business-friendly measures, such as land and labor reforms, may now be put on the back burner.”

During his decade in power, Modi’s government has stabilized India’s once shaky macroeconomy, moved hundreds of millions of people into the digital economy, and delivered long-needed tax and other reforms. But India still faces serious structural challenges in education and agriculture. In 2021, Prime Minister Modi was forced to abandon planned agricultural reforms due to massive protests.

Before the electoral upheaval, government officials had said a large majority would allow them to push through reforms needed to turn India into a manufacturing economy, such as more flexible labor laws and laws making it easier to buy land.

Modi then quickly signaled business as usual, appointing a new Cabinet that is largely similar to the previous one. Analysts also expect the new administration to pick up where the previous one left off, perhaps instituting a new round of production-linked incentives and furthering Modi’s “Developed India” goal of making India a developed country by 2047.

But analysts say the opposition will now feel more represented and empowered to block Modi, both in parliament and perhaps in new street protests.

In addition to a stronger opposition, Mr. Modi could face more backlash from within his own political camp, including from the RSS, which has a less market-friendly economic outlook than Mr. Modi. The RSS is skeptical, for example, of India opening up its defense sector or of free trade deals like the one New Delhi has been negotiating with Britain for more than two years.

“He’s going to face the normal things that any normal politician faces in a democracy: criticism,” said Pramit Pal Chaudhuri, director of South Asia at the Eurasia Group. “The sense is that he’s no longer as politically invincible as he was before.”

The new ministers have been mostly silent for now, but indications of the direction of Modi 3.0’s business program will likely emerge in the new budget next month and in the prime minister’s Independence Day speech on August 15, in which he typically lays out grand economic policy promises. Vikshit Bharat (Advanced India) Declaration was announced last year.

For now, the mood in the business world remains publicly upbeat. In a statement congratulating Modi on his re-election, Sanjiv Puri, president of the Confederation of Indian Industry, praised his “sharp leadership” and expressed confidence that the new government “can lead the next phase of reforms” to make the most of India’s global opportunities.

Some skeptics say that may be harder given that after a decade of political dominance, India has reverted to the practice of coalition governments. “If India hasn’t undergone major structural reforms in the last decade, why do we need them now when the BJP doesn’t have a majority and has to please its coalition partners?” one senior business commentator said privately.

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