Reforms will continue strongly in India despite coalition constraints

From the editor’s desk

The recent general elections in India have culminated in a coalition government led by Prime Minister Narendra Modi, marking a significant shift after a decade of single-party majority rule. This transition has stirred apprehensions about the country’s economic trajectory, with some questioning whether the coalition nature might impede the progress made over the past years. However, there are compelling reasons to believe that the Modi government will continue to lead the country with the same strength and reformist zeal as it did with a bigger mandate.

Jagdeep S. Chhokar of the Association for Democratic Reforms has highlighted the differences in leadership styles between Modi and former Indian Prime Ministers Vajpayee and Singh, noting that Modi is less accommodating of differing opinions. This observation, while potentially highlighting challenges in coalition governance, also underscores Modi's decisive and assertive leadership style.

Modi's track record of pushing through significant reforms despite opposition suggests that his strategic vision and determination will not waver.

India's history with coalition governments since the economic reforms of 1991 has been marked by substantial growth and successful reforms. These governments have navigated complexities and delivered high growth rates, proving that coalition politics does not inherently hinder economic progress. With a projected growth rate of 6-7% for FY25, India’s broader economic trajectory remains promising despite global headwinds.

India's economic indicators further bolster confidence.

Total factor productivity (TFP) growth has been on an upward trajectory, and the country’s corporate and bank balance sheets are robust, providing a solid foundation for future growth and the corporate capital expenditure cycle. These strong economic fundamentals will support the Modi government in continuing its reform agenda.

The coalition partners in the current government have limited leverage to disrupt the administration. Major coalition partners, such as the TDP, JDU, and Shiv Sena, are primarily focused on their state-level agendas rather than broader ideological battles. This dynamic suggests that while coalition partners will seek benefits for their constituencies, they are unlikely to significantly obstruct Modi’s overall governance strategy.

Despite the coalition constraints, significant changes in Modi's governance style are unlikely.

The strategic choices by Modi and Amit Shah will continue to drive the government’s policy direction. The focus on alleviating inequality, promoting inclusive growth, and broadening economic reforms will likely intensify. The government is expected to persist with investment-led economic strategies, while also introducing measures to stimulate demand and support social welfare.

Key reforms in manufacturing, ease of doing business, digitization, and skilling are set to continue. Although challenges in agriculture, land, labor reforms, and privatization may arise, the government’s commitment to reform is steadfast. The upcoming budget will be a litmus test, providing clarity on economic priorities and setting the stage for future growth.

India stands at a critical juncture, facing domestic and global challenges, including geopolitical shifts and the imperative of decarbonization. The government’s ability to maneuver these issues while maintaining economic stability will be crucial.

The additional fiscal space of Rs 1.2 trillion for FY25 and the adherence to fiscal deficit targets underscore a prudent economic management approach.

The Modi government, despite the coalition nature, is poised to continue its strong leadership and reformist agenda. The historical success of coalition governments in India, robust economic foundations, and strategic governance will ensure that the country remains on a path of growth and development.

The coalition dynamics may introduce new challenges, but they also offer opportunities for more inclusive and broadbased economic policies.

As India moves forward, the confidence in Modi’s leadership and the government’s reformist zeal remains unwavering. The coalition's united vision and Modi's leadership are poised to advance significant initiatives in governance, development, and social welfare, ensuring that India continues to progress towards a prosperous and resilient future.

The 2024 Lok Sabha elections have confirmed the BJP's electoral strength and emphasized the crucial role of coalition politics in India's democracy. The NDA's victory promises a stable and progressive government that will effectively meet the aspirations of Indians and strengthen the nation's trajectory towards greatness.