- Sunday, February 23, 2025
According to a Chinese outlet, analysts said market reaction showed that business and financial circles, and international capitalists, are not very confident in the future of the Indian economy.
By: Shubham Ghosh
FOR the Chinese, seeing Indian prime minister Narendra Modi getting a reduced majority in the recently held general elections was perhaps a delightful experience. The reasons are not too difficult to assess.
No other country in Asia counter-balances China like India does and as an evolving manufacturing hub with the backing of the western world which is currently at odds with Beijing, the South Asian nation is indeed a threat to China’s dominance in manufacturing and its economy.
It was no wonder hence that the Chinese were keeping a close watch on how Modi was doing in the general elections.
The results of the elections that came out on June 4 showed that while the incumbent Indian prime minister managed to get yet another term, it was a more weakened mandate as his own Hindu nationalist Bharatiya Janata Party (BJP) did not get a majority on its own, unlike in the last two elections in 2014 and 2019. To maintain the majority over the next five years, Modi would have to depend on his regional allies, including Nitish Kumar, who is known for his fickle-mindedness.
Read: China protests against Modi’s reply to Taiwan president on poll win
The compulsions of coalition politics could hinder major reforms and decisive steps and this is something that would make the Chinese glad.
China’s belligerent state-owned media outlet Global Times came up with the headline ‘Modi claims victory with alliance winning only narrow majority’. The sub-headline of the report read, ‘Economic reform a difficult mission in his 3rd term: Expert’.
“Chinese experts said that, however, Modi’s ambition to compete with Chinese manufacturing and improve India’s business environment will be difficult to accomplish,” according to the Chinese outlet’s report.
Read: Lack of jobs and high inflation hit Modi’s election appeal: survey
The Global Times also published video stories that were headlined ‘Modi claims victory for a third term, but it seems more like a loss’ and ‘Can India become world’s third largest economy within the next several years?’
It may be mentioned here that before the election this year, Modi had vowed to make India the world’s third largest economy in his third term.
The state-run China Daily’s report was headlined, ‘Modi declares victory amid setback to party’. Focusing on the economy, the report said, “Results signal shift in voter priorities as India copes with economic distress.”
These focus on economy and reforms show how much worried China was about India emerging as an alternative manufacturing hub under Modi and challenging its prospects.
Under the first and second Modi governments between 2014 and 2024, India succeeded in weaning away manufacturers from China. Foxconn, the main manufacturer of products made by Apple, has been shifting its production to India from China. Its chairman Young Liu met Modi several times last year and was also conferred Padma Bhushan, India’s third highest civilian award in January.
India was looking to match China in terms of cheap labour and fast clearance for foreign manufacturers, something that Modi prioritised to reduce the impact of red-tapism that has been known to peg the Indian economy back for many years. The prime minister promoted terms such as ‘Make in India’ and ‘Aatmanirbharata’ (self-reliance) to boost the indigenous economic capacity, posing a potential threat to the Chinese brand.
After having overtaken the UK to become the world’s fifth-largest economy in 2022, Modi’s India was preparing to take off further as the world’s fastest growing large economy with the GDP expected to grow at eight per cent in the 2023-24 financial year.
While the country looks to reap benefits of its young population (demographic dividends), the experts feel that it has 25 years at best to make the most of it. After that, the country will turn into a grey economy and hence the need of the day is to grow faster. Modi’s idea of ‘Viksit Bharat’ is aimed at making India a developed nation by 2047, the year the country turns 100 as an independent nation and it is not a coincidence that the time frame tallies with the 25-year period of reaping the demographic dividends.
But with his majority now reduced, Modi may find higher speed breakers to negotiate with and would make the Chinese, who do not have to deal with ‘democratic doldrums’ happy.
India needs good schools, higher education institutes and high-quality skill-growing centres without wasting much time and the new government’s challenge lies there.
Chietigi Bajpaee, a senior research fellow at the London-based think tank Chatham House, said in an article titled ‘India’s shock election result is a loss for Modi but a win for democracy’ that the reduced mandate for Modi’s party is bound to have policy implications.
“From a policy perspective, the election outcome will likely impact India’s policymaking efficacy, making it more difficult to make progress on some of the more politically sensitive economic reforms, such as land acquisition and labour reforms,” he wrote.
The Chatham House report also notes how several ongoing free-trade negotiations, including the one with the UK, are a priority if India is to become a global manufacturing hub but might be hit due to “a weaker coalition government in New Delhi”.
The Global Times said in its report, “Analysts said the market reaction shows that business and financial circles, as well as international capitalists, are not very confident in the future of India’s economy.”
A report from CNN said that one of the biggest challenges for the new government would be to grow the manufacturing sector.
However, it is not only about pessimism at the moment. While it is true that Modi did not succeed in ensuring the majority he would have liked his party to gather, it is also true that China’s relations with the West would not change for the better overnight and that would still leave India as the beneficiary.
The population of the world’s most populous nation ensured that its high internal consumption kept the growth story intact even during the times of the pandemic. The government has made massive expenses in building infrastructure and that should continue to serve the economy well. The Indian diaspora still harbours high hopes about the future of the country’s democracy and that would not allow any trust deficit to hurt its interest.
Malcolm Dorson, head of emerging markets strategy at global investment management firm Global X, told CNN, “Investing in India is about much more than this election. It’s a 20-year story, and not one that depends on the next two weeks.”
New York-based rating agency Fitch also sounded a similar optimism about the India story.
New Delhi is expected to maintain broad policy continuity, but the weak mandate from the 2024 election will pose challenges for advancing ambitious reforms, Fitch Ratings opined on Thursday.
One aspect that would assure Modi and his BJP is that N Chandrababu Naidu, one of the allies that the prime minister would have to depend on in his third term, is also known for his development-friendly governance in the southern state of Andhra Pradesh and one would expect that he would be as committed to see that India’s economic growth doesn’t get sacrificed at the altar of petty politics.
One should not forget the fact that India’s path-breaking economic liberalisations of 1991 were carried out by a minority government led by former prime minister PV Narasimha Rao and his finance minister Manmohan Singh.
