Modi 3.0: The Big Shift

Executive Summary Globally, India is today perceived to have strong political leadership , resulting in a surge in inbound investment.

The government’s emphasis on welfare schemes, cultural connect, hyper-nationalism, and global diaspora engagement have contributed to its immense popularity.

However, the BJP will struggle to cross 370 – historically, it has faced an uphill challenge against regional parties at both the state and national levels.

To get to its target, the NDA bloc will necessarily have to increase its seat-share in specific states, mostly in the South.

The Modi administration has successfully implemented major projects but also has a propensity towards reactive policies.

Some of the key challenges the next government should prioritise include labour and agricultural reforms, data transparency and a widening North-South gap.

. Analysts are in consensus that Narendra Modi will return for a third term in office, potentially with a roaring majority. Such a victory would be historic, marking the first instance after Jawahar Lal Nehru, of an Indian Prime Minister serving three consecutive terms in India. At a recent joint session of the India CEO and CFO Forums in Pune, Shankkar Aiyar, a renowned political economy analyst, author and columnist, discussed the BJP government’s approach towards the private sector, assessed the business, economic and political implications of a Modi 3.0 government, and explored how policy stability has facilitated private-sector growth.

. The ‘Why’ Factors of Modi 3.0 Building on the foundations laid by previous governments, Mr Modi has driven a holistic agenda focused on economic growth, social welfare and digital prowess. Initiatives such as Jan Dhan accounts, rural electrification, Swachh Bharat and Gatishakti, together with a strong emphasis on cultural connect, hyper-nationalism and engaging the global diaspora, have contributed to his government’s popularity. Even viewed through the lens of the Western media, India is now perceived to have strong political leadership. This has attracted a huge inflow of investment, and much of the credit for this has gone to Mr Modi.

Before Mr Modi assumed office, India faced significant challenges, including high crude oil prices, a bloated subsidy bill and balance of payments issues. In recent years, initiatives such as Aadhaar have fed into a robust ecosystem for digitisation, enabling streamlined subsidy payouts as well as efficient systems such as UPI and Fastag. It has also driven a surge in demat accounts, allowing household to invest in the stock market, earning better returns in the process. The NDA has invested heavily in ensuring the seamless transfer of welfare spending through the DBT system, which has seen cumulative transfers of Rs 34 trillion since 2013. Reforms such as the Insolvency and Bankruptcy Code (ISB) have tackled a seriosu ‘twin balance sheet problem’, in which banks NPAs surged on account of excessive leveraging in the private sector. The PLI scheme, meanwhile, is bolstering domestic manufacturing.

Crucially, there has been a major focus on capital expenditure, particularly through the infrastructure route. This has visibly benefited the construction sector, improved the balance sheets of public sector companies and made feasible the complete electrification of railway lines within the next five years. In the last seven years, the government has invested ~Rs 64 trillion in infrastructure, which is projected to double in the next 7, to ~Rs 140-150 trillion.

. Electoral Challenges… The BJP holds sway over 18 states that account for 290 Lok Sabha seats, either singly or with coalition partners, and it has a stranglehold over more than 50% of all Parliamentary seats. Efforts by the opposition to come together to consolidate their vote share has so far floundered, with the INDIA bloc crumbling in most regions. However, the NDA faces significant hurdles in its quest for 370+ seats. Historically, the BJP has faced an uphill task against regional parties, at both the state and the national level. Its target of 400 seats for the alliance is highly optimistic, and even to achieve its stand-alone target of 370, the BJP will necessarily have to make gains in states such as Uttar Pradesh, West Bengal, Karnataka, Telangana, Andhra Pradesh, Tamil Nadu and Kerala.

. …and Systemic Ones Over the past decade, the Modi government has demonstrated a propensity for reactive policies, particularly in areas such as migration, welfare and the implementation of initiatives like ‘one nation - one ration card.’ Although it has been adept at swiftly responding to challenges, it has been less proficient at formulating truly reflective policies. A key concerns is the call for reservations in government jobs for primary landowning communities. Additionally, the fact that nearly half of India’s workforce is employed in agriculture, but generates only one-sixth of national income, underscores the urgent need for comprehensive policy reforms. More generally, with millions of new entrants into the workforce each year, there is an urgent need for continuous skilling and upskilling.

Another significant concern revolves around a widening North-South economic gap, with tax revenues predominantly flowing from the South but fund allocations favouring the North. There is, finally, untapped potential to leverage data for policy formulation. For instance, the GST data could provide valuable insights into consumption patterns and tariff impacts across sectors and regions. Unfortunately, the government has chosen not to share this data, hindering a detailed analysis that could also open up huge opportunities for business.