Narendra Modi secures allies’ backing for new government after India election setback

Narendra Modi has won the formal backing of allies of his Bharatiya Janata party to form a government after the BJP lost its outright majority in India’s general election.

Leaders of the National Democratic Alliance unanimously elected Modi as their leader on Wednesday afternoon in Delhi. The prime minister had earlier met President Droupadi Murmu to tender his resignation ahead of the swearing in of a new BJP-led government, expected on Saturday.

Modi needed the support of NDA allies after election results on Tuesday showed the BJP had lost its outright majority in parliament, the prime minister’s biggest political setback in a decade of power.

Stock markets in India rose on Wednesday after sharply selling off the day before in response to the split election result, which augured a less stable political landscape for Modi’s third five-year term.

The Nifty 50 index of India’s top stocks closed up 3.4 cent having dropped 5.9 per cent on Tuesday, mirroring moves by the BSE Sensex benchmark index.

Shares of groups owned by the Modi-allied tycoon Gautam Adani also rallied somewhat after his two flagship companies led losses on Tuesday. Adani Enterprises advanced 6.02 per cent, while Adani Ports and Special Economic Zone climbed 8.59 per cent.

Final results published overnight showed the BJP had lost its majority for the first time since 2014. The ruling party won 240 seats in India’s 543-seat Lok Sabha, or lower house, where it will remain the largest party. The opposition INDIA bloc, led by the formerly ruling Indian National Congress, performed better than expected, winning 234 seats.

Modi had said on Tuesday evening that he planned to form a government with smaller parties in the NDA, which won another 53 seats, giving the prime minister’s bloc a potential total of 293 seats. 

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The results were an unexpected blow for Modi and the BJP, who in the run-up to the election had targeted as many as 400 seats for the NDA. The BJP also lost ground in some of its traditional strongholds, including India’s most populous state of Uttar Pradesh in the north.

Indian newspapers offered frank assessments of the setback for Modi and the BJP. “India gives NDA third term, Modi a message”, a headline in The Indian Express read. The Telegraph, a daily published in Kolkata in opposition-ruled West Bengal, proclaimed: “India Cuts Modi Down”.

Important Modi allies from regional parties had reaffirmed their backing for the NDA ahead of talks among the allies on forming a government. “I am firmly with the NDA,” Chandrababu Naidu, leader of the Telugu Desam party in southern Andhra Pradesh state, told journalists.

Chirag Paswan, leader of the Lok Janshakti party in the eastern state of Bihar, told reporters the NDA had the “people’s mandate” to form a “stable and strong government” under Modi for another five years.

Representatives of the roughly two dozen parties in the INDIA opposition also met in Delhi on Wednesday to discuss the election results and future strategy.

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Analysts said Modi’s weaker performance might make it harder to enact bold reforms in areas such as labour and land use that they believed India needs to become a manufacturing powerhouse and lure more investment away from China. But they added it might curtail the BJP’s nationalistic aims and realign the party towards bread-and-butter economic issues.

The results “might persuade Modi’s BJP to focus more on economic reform and job creation” and “soften” their Hindu-majoritarian “ethnic messaging”, said Hasnain Malik, a Dubai-based emerging markets strategist at Tellimer.

Arnab Das, global market strategist at Invesco in London, said there was “still probably a sweet spot for the markets and expectations of reform”, but added that the result “may make it more difficult to free up the labour market and the land market”, which involves implementation by India’s 28 states.

The difficulty for Modi’s incoming government “is going to be how to generate more inclusive growth, how to generate greater employment to take advantage of this demographic dividend”, Das added. “The challenge is how to get there with a reduced majority.”