Indian Prime Minister Narendra Modi faces an early test of his third term in power as he prepares to deliver a budget that will require him to balance the demands of his new coalition government with an economic vision that will boost his confidence after a surprise election disappointment.
Modi’s Bharatiya Janata Party was re-elected to a historic third term in June, but unexpectedly lost its majority in parliament and the prime minister Dependence on two local “kingmakers” To ward off rekindled opposition.
Allies the Telugu Desam Party in southern Andhra Pradesh and the Janata Dal (United) in northern Bihar are demanding billions of dollars in funding for their states ahead of the government’s first budget for the financial year ending March 2025, to be presented on Tuesday.
TDP spokesman Neelayapalem Vijay Kumar said the party wanted to “use its influence” as a coalition partner to secure funding for roads, oil refineries and a new “hi-tech” state capital, Amaravati.
The JDU, meanwhile, is demanding infrastructure projects like an airport, a medical college, a power plant and new roads. “A new government has been formed and our party, the JDU, is a part of it,” spokesman Kishan Chand Tyagi said. “The expectations of the people of Bihar are high.”
Nomura, at the request of its coalition partners, India‘s GDP this year.
ModiMohammed bin Salman, an imperious leader known for bold and surprise announcements, has never led a minority government. Investors are watching for early indications of whether he can accommodate the compromises needed for a coalition government while continuing his fiscal consolidation and business-friendly reforms that he wants to use to turn India into a global manufacturing and technology hub to rival China.
“The economic reforms would not have happened if Prime Minister Modi had not forced them,” said a person close to the party, but added that the BJP “needs to change its style of operation, become a bit more accommodating and make allies in the process. Whether that will be enough is unclear.”
The prime minister is also facing public anger over chronic poverty in rural areas. Widespread unemployment India’s 1.4 billion people remain mired in poverty despite an economic growth of more than 6 percent per year. Finding solutions to these problems, which many analysts cite as the cause of the BJP’s disappointing election performance, will be crucial to his survival at home and to quell questions about how many more years he should remain in power.
Sushmita Deveshwar, senior director, India research at GlobalData TS Lombard, said one of the government’s strengths is its ability to “portray itself well to investors.”
“But on the other hand, people are getting impatient after seeing the election results and voters are waiting to see what the government will do next,” she said. “There’s no quick fix.”
The BJP, which has boosted spending on infrastructure, welfare and subsidy programs in recent years to attract foreign manufacturers, has dismissed concerns about its performance and appointed a largely unchanged Cabinet last month.
The new budget will be supported this year by a record 2.1 trillion rupees ($25 billion) in transfers, part of the Reserve Bank of India’s annual disbursement from its surplus funds.
Analysts expect the extra funds will enable Modi’s government to maintain or even reduce the fiscal deficit from the current target of 5.1 percent (5.8 percent last fiscal year) even with increased spending on infrastructure and coalition government.
Narendra Taneja, a former spokesman for the ruling party, said the coalition partners are “fully aligned with the BJP’s economic vision.” “There will always be some who put forward wish lists, but are there significant differences? No. Are there feuds? No.”
Modi’s return Welcomed by large companies “They don’t fix what’s not broken. There’s merit in continuing,” said R. Shankar Raman, chief financial officer at Larsen & Toubro Plc, India’s largest engineering and construction company, which is in talks to resume development in the city of Amaravati.
But the BJP heads into its third term with daunting economic challenges: Private investment has failed to recover and inequality has risen to historic levels under Modi, with the richest 1 percent of Indians now owning 40 percent of the country’s wealth, according to a report this year from the Global Inequality Institute. The Center for Monitoring the Indian Economy put youth unemployment at 45 percent last year.
Modi may have limited time to show results: The BJP-ruled business hubs of Maharashtra and Haryana, which are allies of the party, go to polls this year, but analysts expect tough battles after the opposition’s big gains in parliamentary elections.
Pronab Sen, a former Statistical Commissioner of India, warned that the perception of preferential treatment for Andhra Pradesh and Bihar in the budget would “create trouble” and increase tensions with other states.
But he suggested that if the BJP is good at consensus building, India’s new political climate could bring economic benefits and help push through further economic reforms.
“For at least the last six or seven years, most of the decision-making has been completely unilateral,” he said. “Now they’re going to have to convince their partners.” [and] If they are smart, they will open it up further to all states.”
