India Politics


India: Modi wins largest democratic elections in history with an overwhelming majority

May 16, 2014

The results of India's six-week parliamentary elections were released on 16 May. According to the Election Commission of India, which provided the official results, the National Democratic Alliance (NDA), a coalition of 29 parties in which Narendra Modi's Bharatiya Janata Party (BJP) is the leading party, obtained a total of 336 constituencies out of 543. The United Progress Alliance (UPA), which is led by the Indian National Congress (INC) only won 59. Therefore, Modi will be the first Indian Prime Minister since 1989 to lead a party with an absolute parliamentary majority.

At the party level, the BJP obtained an outstanding 282 out of the 543 constituencies. Conversely, the INC, which was seen as the main contender of the BJP, came in second place with just 44 constituencies. All India Trinamool Congress (ATTMC) with 34 constituencies and All India Anna Dravida Munnetra Kazhagam (AIADMK) with 37 constituencies, both from the NDA coalition, came in third and fourth place. The anti-corruption Aam Aadmi Party (AAP), which was seen as a potential new player in the political landscape, won just 4 constituencies. Accordingly, the NDA coalition will held a strong government that will ease the pace to implement the economic reforms that Modi's BJP has advocated for during the campaign.

Despite Modi's resounding victory, some analysts recognize that there is still a degree of uncertainty regarding the first moves that the new administration will make. Modi is seen by most analysts and investors as a business-friendly politician who is expected to push for reform and implement similar policies to those applied in the State of Gujarat where he was Chief Minister. In the short- and medium-terms, these policies are expected to focus on reducing the state's role in the economy and promoting stalled investment programs. Moreover, the new government is considered to be markedly hawkish on the evolution of public spending. Therefore, it is expected to reduce public expenditures and to resort to a one-off sale of stakes in public companies in order to reduce the fiscal deficit. According to Modi's experience in Gujarat, the promotion of foreign direct investment (FDI) in key sectors (mainly in infrastructures) is also expected to be a priority in the near term. Some analysts also see that changes to the labor market regulation are likely to be implemented, although a deep labor reform is not expected in the near term. Nevertheless, the Modi administration is seen as more prone to decentralize the labor market regulation laws to the State level. The decentralization of the labor law is expected to take place before an overhaul of the labor market legislation.

When the preliminary results were unveiled early on 16 May, the Indian Rupee (INR) immediately experienced a strong surge in the foreign exchange markets; it appreciated nearly a 1.5% and reached the highest level since July 2013. Moreover, Modi's victory led to a rally in the stock market. On 16 May, the SENSEX index was up 5.5% over the same day in April. The index had already risen sharply as the polls started to indicate a strong NDA victory in early May.


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