Heading into India’s recent national election, Prime Minister Narendra Modi had made his ambitions clear — a third successive term, but this time with a commanding 370 seat supermajority for his Bharatiya Janata Party (BJP). Having almost maxed out the BJP’s presence in the Hindi heartland of northern India in the 2019 elections, winning 67 more seats in 2024 could only have come from broadening the BJP’s national appeal and making inroads into the southern states.

Modi had on his side unparalleled name recognition from the linking of his personal brand to India’s vast array of welfare schemes, a complicit press cowed over the course of the BJP’s decade in power, a strongman image cultivated through the fulfilment of Hindu nationalist promises and increasing influence on the world stage, and an opposition distracted by infighting and harassment by BJP-friendly law enforcement agencies. No wonder pollsters predicted another ‘saffron wave’ that would substantially increase the majority held by the National Democratic Alliance (NDA), the coalition the BJP leads, in the Lok Sabha, India’s lower house of parliament.

What actually happened was almost the exact opposite. Not only did he fail to make meaningful ground in the south, Modi lost seats in the important battleground states of Maharashtra, Rajasthan and West Bengal. Most crucially, he lost his heavy majority in Uttar Pradesh (UP), India’s largest state — more populous than Vietnam and Japan combined — which sends 80 MPs to parliament. Of the 63 seats lost by the BJP, 29 came from UP alone.

As Rojan Joshi writes in this week’s lead article, ‘Indian voters have sent a clear message that dealing with the problems of the economy matters more than divisive populist rhetoric’. In the lead up to the campaign, Modi had flexed his Hindutva credentials — most prominently through his consecration of the Ram Mandir in January at the purported birthplace of the deity Rama, which concluded a decades-long effort to build a Hindu temple to replace the mosque torn down by a nationalist mob in 1992. 

As Joshi explains, ‘[t]he payoff from the BJP’s mixing of politics and religion seems largely to have been exhausted’, with the BJP even losing the seat in which the temple was constructed. The election has instead reaffirmed the importance of caste calculations for the Indian electorate, despite the BJP’s attempts to construct ‘a single unitary vision of Hindutva politics’. Indeed, fears that Modi may have used a supermajority to amend caste-based quotas written into the constitution was a major reason for his loss in his traditional strongholds.

With the BJP falling short of a majority, Modi will have to rely on a coalition to govern, for the first time in his political career. This will require him to ‘change his centralised, top-down approach to policymaking and adopt a more conciliatory tone in negotiating with his alliance partners’, Joshi says. This is especially important because many of his allies do not share Modi’s vision for India, having joined the NDA primarily to defeat regional adversaries. The Janata Dal (United) of Bihar and the Telugu Desam Party of Andhra Pradesh in particular, having brought 28 seats to the coalition, are likely to use their newfound ‘kingmaker’ status to seek generous concessions for their states.

Yet Modi’s third term is likely to bring mostly policy continuity. The BJP is still dominant within both the government and the Lok Sabha overall, with more than twice the seats of the next largest party, the Indian National Congress. It holds 61 of 72 ministerial appointments, including all of the key cabinet positions. The difference, compared to a scenario where Modi had won his forecast thumping victory, is that the shackles imposed by coalition rule will make it harder for the BJP to push through its Hindu nationalist domestic agenda, given its coalition partners have little interest in supporting it. Instead, the election result could push the economic development agenda higher on the BJP’s priority list. 

The re-elected NDA government has plenty of work to do on the economic front. India’s strong growth — it is the fastest growing major economy — has been driven by the high-tech services sector. But this growth has come without a corresponding increase in jobs. Unemployment remains high, particularly among the youth population, forcing workers into the informal sector or into unproductive agricultural work. As Joshi explains, ‘[p]ervasive unemployment and the failure to deliver accessible manufacturing jobs, and the consequent growth in inequality, was the key economic issue that led to Modi’s electoral rebuke.’

Indian development needs to be ‘centred on the nation’s main resource: its abundant but on average low-skilled labour force’. This requires a repositioning of its economic growth model, both domestically and internationally. Too much of India’s vast stock of labour is stuck in the unproductive agricultural sector and needs to be reallocated into more productive employment, principally in manufacturing.

The Modi government’s current approach to manufacturing emphasises capital-intensive industries that are ill-suited to most of India’s workforce. Part of the reason for this is the government’s strategy of seeking to build ‘self-reliance’ in key industries, many of which are high-tech and require skilled workers. But India is far behind the technology frontier in many of these products and will struggle to achieve international competitiveness. Focusing instead on established labour-intensive industries offers scope for India to absorb its growing labour force and increase its share of global manufacturing exports from its current low base of only about 2 per cent.

A corollary of the ‘self-reliance’ approach has been protectionist policies that raise import barriers to shield domestic manufacturers. As Joshi points out, these policies only ‘sabotage India’s growing role in global value chains’. Indian firms, and the workers who could find jobs in them, are better served by low import barriers that give them access to cheap, high-quality inputs into production. 

The election has shown that voters care more about the economy than religion or nationalism. The reform agenda will now require more patient negotiation with an expanded set of players. But if Modi is to meet their demands, as well as achieve his own ambitious economic goals, that is unavoidable.

The EAF Editorial Board is located in the Crawford School of Public Policy, College of Asia and the Pacific, The Australian National University.