Modi 3.0 to be Much Like Previous Two Terms
A weakened BJP has formed a government with support from regional parties and independents. The BJP holds 240 seats in parliament on its own and with its partners the government in power now holds 303 seats, which is substantially higher than the 272 needed to form a government. As a consequence, policy continuity is expected. Prime minister Modi's appointment as the prime minister has boosted investor confidence and business continuity is likely.
Narendra Modi, leader of the Bharatiya Janata Party and the National Democratic Alliance, was sworn in as Prime Minister for a third consecutive term, along with 71 ministers earlier this month. The oath of secrecy and office was administered by President Droupadi Murmu to 30 cabinet ministers, five ministers of state (Independent Charge), and 36 ministers of state. Among those who took the oath as cabinet ministers at Rashtrapati Bhavan were Rajnath Singh, Amit Shah, Nitin Gadkari, Nirmala Sitharaman, and S Jaishankar, all of whom served in the previous Modi Cabinet. Narendra Modi has made history as the first Prime Minister since Jawaharlal Nehru to secure three consecutive terms. The BJP-led coalition now holds 303 seats in parliament.
The swearing-in ceremony was attended by political veterans, business leaders, celebrities, and actors. Members from allied parties also took oaths, including JD(S) leader HD Kumaraswamy, HAM (Secular) chief Jitan Ram Manjhi, JD(U) leader Rajiv Ranjan Singh 'Lalan', TDP's K Ram Mohan Naidu, and LJP-RV leader Chirag Paswan, each securing a cabinet position.
With this being a coalition government, the new cabinet is larger than in Modi's previous two terms. However, much of the cabinet remains unchanged, ensuring policy continuity and efficiency. The stock markets have since responded positively to the news, reaching record highs and reflecting strong investor confidence. Meanwhile, the government is drafting its first 100 days plan and this includes key goals being set by each industry. On the finance and business front, the government has already begun preparations for the upcoming full year budget FY25. The main things to watch in the upcoming budget include the outlay for infrastructure and logistics development. The BJP government in the previous two terms has pushed ahead with increasing capital expenditure and propping up growth through infrastructure development. However, with a lower than anticipated vote share this time, the government’s priorities are likely to pivot towards consumption spending.
In our view, the government’s business policies will remain unchanged. Modi government will persist with policies focused on manufacturing sector, increasing domestic production and building infrastructure. Modi will look to tie the infrastructure development spending with welfare measures. This move was evident by the BJP government’s first move upon taking charge. The government approved assistance for house construction to an additional 30mn rural and urban households, addressing the increased demand due to more eligible families. Since FY16, the government has been implementing the Pradhan Mantri Awas Yojana (PMAY) to support eligible households in building homes with basic amenities. Over the past decade, PMAY has facilitated the completion of 42.1mn houses for poor families. These homes include essential services such as toilets, LPG connections, electricity, and tap water through collaborations with various central and state government schemes.
The finance minister is expected to present FY25 budget in parliament in the third week of July, coinciding with the start of the monsoon session of parliament, which is set to begin on July 22. The session is expected to run until August 9. Among other things to watch under this government will be -
- The central government’s commitment to supporting states through timely tax devolution and GST compensation arrears to stimulate growth.
- A key discussion likely to be included in the government's 100-day agenda is the review of the controversial Agnipath military recruitment scheme, which has been called for by the coalition partners.
- A continuation of defence deal negotiations
- Proposed changes to enhance economic activities in special economic zones
- A boost to the agriculture sector through continued subsidy provisioning
- Changes to the income tax laws. It is likely that tax rates may be cut to boost consumption
- Increased outlay for domestic manufacturing schemes
- Outlay for railways, renewable energy and MSMEs to be higher
Although the BJP has formed a government with support from coalition partners, it also enjoys support from 11 additional independents, making it a relatively strong force in parliament. The government’s business policies are unlikely to change in this term but allocations to certain states may change given regional partner support. Additional outlay and exemptions are likely for certain states and sectors as coalition partners may demand higher state outlay or specific schemes for key sectors in the state. Overall though, we retain our view that the BJP government’s focus will remain on supporting growth through infrastructural development and consumption spending. The government will not compromise on fiscal gains made over the past few years, and therefore the government’s fiscal deficit target of 5.1% of GDP for FY25 will remain in place.