Shifting Tides: The Economic Impact of India's 2024 Election Outcome
Author: Colin Chow, Research Executive
Editor: Tavisha Jain, Research Director
As of June 2024, Narendra Modi's Bharatiya Janata Party (BJP) has secured a third consecutive term in office in the latest general election. However, this victory is overshadowed by the BJP losing its parliamentary majority, forcing Modi to rely on alliance partners to form a government for the first time since 2014. With the BJP winning only 240 seats, falling short of the 272-seat requirement for a majority, questions arise about whether this new political phase signals the end of “Modinomics” and the economic growth associated with it. This essay explores the disconnect between economic growth and electoral success and discusses the economic implications of the 2024 election results in India.
On the surface, India's economic indicators are strong. Under Modi’s leadership, India has overtaken the United Kingdom to become the world’s fifth-largest economy, with an impressive growth rate of 8.2% in the last fiscal year (Madhok 2024). This robust economic performance would seemingly make a loss in support for Modi’s administration appear counterintuitive.
However, a closer examination reveals that inequality in India has worsened over the past decade, partly due to the government’s favoritism towards large domestic conglomerates and big businesses. The richest 1% now control 40% of the country’s wealth, while the bottom 50% hold just 6%. Opposition parties tapped into the discontent of voters who felt left behind by India’s two-track growth story, significantly contributing to their success (Joshi 2024). The Gini Coefficient shows that inequality has risen from about 35 in 2012 to 42 in 2022 (Muttaqien et al. 2012; Menon 2024), and per capita income (USD 2,700) remains low by global standards (average of about USD 12,600). The labor market remains structurally weak, with the unemployment rate only marginally lower at 3.2% in 2022-23 compared to 3.4% in 2013-14 (Purohit 2024). This discrepancy between Modi’s job creation promises in 2014 and the actual outcomes likely dampened support for the BJP.
So, what is the broader significance of this election for the Indian economy?
Many believe that India’s growth will continue despite the change in political dynamics, with the government maintaining a focus on job creation and manufacturing in the long run. India’s vast consumer market and affordable labour costs will continue to attract investors and trading partners. India will also benefit from friend-shoring, a trade practice where supply chains are moved through allies. While tensions between Beijing and the US are rising, New Delhi enjoys warm relations with its Western counterparts. Modi’s government has also overseen a construction boom, spending billions on roads, railways, and airports. Additionally, public digital platforms like the Unified Payments Interface (UPI) have transformed lives and businesses, aiding economic expansion (Madhok 2024). With healthy trade relations, attractive demographics, and a developing digital infrastructure, all indicators point to continued Indian growth over the next few years.
However, the formation of a coalition government in New Delhi may hinder India’s recent growth, potentially unsettling investors. Given that Modi is not known for bipartisan policymaking, the next few months will be crucial to see if the BJP can collaborate with its alliance partners for inclusive development. The BJP’s underperformance caused shockwaves in the Indian market, with the BSE Sensex index plunging 5.7%, with stocks posting losses of $386 billion—the biggest one-day decline in four years—demonstrating how closely investors are monitoring Indian politics. It would thus be of considerable significance for New Delhi to ensure that the transition to a coalition government does not unravel the economic progress made over the past decade.
In the Further Readings section below, I have given some pieces which I believe are worth exploring. The below readings map out the growing strengths of the Indian economy from different perspectives. Chakravorti & Dalmia (2023) provide a comprehensive overview, analysing from the vast lens of demand and supply side growth. Morgan Stanley (2022) focuses on digitalisation and energy consumption, a refreshing contrast from the former’s rigorous analysis. Lastly, Moritz (n.d.) offers a quick read, identifying five major focal points of the modern Indian economy.
Further Readings
Chakravorti, B., Dalmia, G. (2023, September 6). Is India the World’s Next Great Economic Power? Harvard Business Review. https://hbr.org/2023/09/is-india-the-worlds-next-great-economic-power
Morgan Stanley. (2022, November 8). India’s Impending Economic Boom. https://www.morganstanley.com/ideas/investment-opportunities-in-india
Moritz, B. (n.d). India Rising: Five Springboards to developed nation status by 2047. PWC. C-Suite Insights, Publications. https://www.pwc.com/gx/en/issues/c-suite-insights/publications/india-rising-5-springboards-to-developed-nation-status-by-2047.html
References
Joshi, R. (2024, June 16). Modi’s election setback a reality check on India’s economic problems. East Asia Forum. https://eastasiaforum.org/2024/06/16/modis-election-setback-a-reality-check-on-indias-economic-problems/
Madhok, D. (2024, June 5). ‘Still a strong story.’ Why India’s election shock won’t derail its economic boom. CNN Business. https://edition.cnn.com/2024/06/05/business/india-economy-what-next-intl-hnk/index.html
Menon, R. (2024, January 23). Analysing the rising gap in incomes. TheHindu. https://www.thehindu.com/news/national/analysing-the-rising-gap-in-incomes/article67770234.ece
Muttaqien, A., O’Donoghue, C., Sologon, D. (2019). Understanding Differences in Household Expenditure Inequality Between India and Indonesia, Decancq, K. and Van Kerm, P. (Ed.) What Drives Inequality? (Research on Economic Inequality, Vol. 27), Emerald Publishing Limited, pp. 55-68.
Purohit, M. (2024, April 24). Unemployment biggest worry in India, world's fastest growing economy: Reuters poll. Reuters. https://www.reuters.com/world/india/unemployment-biggest-worry-india-worlds-fastest-growing-economy-2024-04-24/