May 16 — India’s opposition Bharatiya Janata Party (BJP), led by its prime ministerial candidate Narendra Modi on a pro-governance and pro-business ticket, has achieved a historic simple majority in the nationwide elections whose results were declared May 16.
Modi is on track to form the government the week of May 19, leading to much cheer among businesses and industry associations across the country, reflected in all-time high indices at the main stock exchanges and a stronger rupee value against the dollar.
This is the first time since 1984 that a single party has won a clear majority, and analysts predict a revival of investor, consumer and corporate confidence in Asia’s second largest economy, based largely on Modi’s promise of “less government, more governance.”
The verdict is being seen as a clarion call for change—held back for decades by divisive and regressive coalition politics—as well as a rejection of the outgoing Indian National Congress’s populist entitlement-based policies in favor of revival of industrial growth and job creation.
A Deutsche Bank statement e-mailed to Bloomberg BNA May 16 said that businesses could expect from the new government an articulation of a credible roadmap towards restoring India’s long-term gross domestic product growth and a manufacturing turnaround. The statement said there would be as strong push on foreign direct investment with defense being an area of high focus.
Improvement in Business Climate
Modi’s victory promises the beginning of a new era in India’s international relations with a clearer pro-commerce slant and based largely on improvement of business climate within India.
In speeches since he was declared the BJP’s prime ministerial candidate, Modi has promised to overhaul India’s diplomatic corps and to make them focus more closely on commerce. He has advocated a greater role for state governments in establishing trade and commercial relations with other countries or their regions/states—for instance, for Goa to expand its ties with the former colonial power Portugal, and Gujarat and Bihar with Africa where there is a huge Indian diaspora.
Economic and trade analysts expect U.S.-India relations to witness an upswing, despite the diplomatic snafu of the fact that Modi was denied a U.S. visa in 2005 under a 1998 law which bars the entry to foreigners who have committed “particularly severe violations of religious freedom” for his alleged role in riots in his home state of Gujarat in 2002. U.S. ambassador to New Delhi, Nancy Powell, resigned in March, making way for a reboot of bilateral relations under the new Indian government.
Rajiv Kumar, senior fellow at the Centre for Policy Research and former director-general of industry association FICCI, told Bloomberg BNA May 13, the day after exit poll results predicted that Narendra Modi would form the next government, that foreign investors would find the business environment more conducive to work in India. Based on Modi’s record in Gujarat, Kumar said, the private sector can expect a much higher degree of autonomy in India in the coming years.
Streamlined Government
He enumerated several areas in which governance is likely to be streamlined and more effective—there is likely to be more decisiveness on important decisions such as public-private partnerships in infrastructure and better intra-ministerial coordination. “Modi knows the importance of good governance for business,” Kumar said, adding, “At the same time, India’s foreign service will be more pragmatic and commerce-focused; it will go from high diplomacy to more bread-and-butter diplomacy—which is as it should be.”
Gunjan Bagla, managing director of California-based consulting firm Amritt Ventures, told Bloomberg BNA via telephone May 16: “What American companies want is control on corruption so that they have a level playing field, and more decisiveness and forward movement—both of which have been severely lacking in the last five years. Modi may not be able to replicate that exactly at the Centre, but even if he is able to do 50% of what he did in Gujarat, India could reach 10% GDP growth annually.”
Nevertheless, some key irritants in India-U.S. relations may yet remain, and may require deft diplomatic handling at both ends. With his nationalist, strongman image, Modi is unlikely to bend on issues such as intellectual property rights in pharmaceuticals and domestic mandates for IT and solar equipment. Although he is a big advocate of renewable energy, a Modi government may continue India’s independent stance in climate change negotiations too. As Kumar said: “One can be sure that no steps will be taken that are in US interest but seen to be anti-India.”