Modi’s BJP-led alliance set for narrower-than-expected win

Indian Prime Minister Narendra Modi will have to seek power-sharing agreements for a historic third term in power, with his Bharatiya Janata Party falling short of an outright majority in the country’s lower house of Parliament.

Completed vote counts by the Election Commission of India showed that Modi’s BJP won just 240 seats. India’s Parliament has 543 seats, and the party or coalition that wins at least 272 forms the government.  

The surprise shortfall raises questions over his popularity — and risks stifling any immediate policies that the BJP was hoping to implement. Instead, Modi will have to look to smaller allies in the wider BJP-led National Democratic Alliance, or NDA, which is set to get a combined 294 parliamentary seats, according to local media.

Meanwhile, the opposition Indian National Developmental Inclusive Alliance, or INDIA, led by the Indian National Congress, won 233 seats — a much better result than previously predicted.

The BJP therefore lost 63 seats compared with its 2019 general election tally of 303. The wider BJP-led alliance won 353 seats in 2019. Modi reportedly said in March that he was confident that the NDA would secure more than 400 seats.

Modi declared victory late Tuesday, despite the reduced majority. “People have placed their faith in NDA, for a third consecutive time! This is a historical feat in India’s history,” Modi said on X as counting was nearing a conclusion.

“As much as Prime Minister Modi remains a popular figure, the shine has worn off as the everyday lived realities of unemployment, inflation and governance are dominating voters’ minds,” Yamini Aiyar, former president of the New Delhi-based Centre for Policy Research, told CNBC’s “Street Signs Asia.”

According to an April survey conducted by the Centre for the Study of Developing Societies, unemployment was the top concern for 27% of 10,000 people surveyed. More than half (62%) of respondents said it had become more difficult to find a job in the last five years during Modi’s second term.

The unemployment rate in the world’s most populous country rose to 8.1% in April compared with 7.4% in March, according to the Centre for Monitoring Indian Economy.

Shilan Shah, deputy chief emerging markets economist at Capital Economics, said in a note that Modi will begin his term with a weakened mandate “and that will make the passage of contentious economic reforms more difficult.”

“But he will still be able to work as the head of a stable coalition,” Shah said.

“And the broader embrace across the political spectrum of the value of economic reform means the new government could still do enough to keep potential growth at 6-7%. That would leave the economy on course to more than double in size over the next decade.”

India’s benchmark indexes, the Nifty 50 and BSE Sensex, on Tuesday plunged 8% as it became clear the BJP could fall short of a majority.

“There were high expectations based on the exit polls yesterday, but numbers seem to be below projections. The opposition has gained strength and the whole narrative has changed,” said Kranthi Bathini, equity strategist of WealthMills Securities.

Market heavyweights Adani Ports and Adani Enterprises both plunged by more than 20% during Tuesday’s session, while State Bank of India and ICICI Bank fell 17% and almost 9%, respectively.

On Monday, both the Nifty and Sensex hit record highs and logged their best intraday gains since Feb. 1, 2021, gaining 3.25% and 3.39%, respectively, after exit polls over the weekend predicted a thumping majority for Modi’s BJP.

The Indian rupee weakened 0.5% against the dollar on Tuesday after strengthening 0.41% on Monday.

Under Modi, India, home to 1.4 billion people, has witnessed robust economic growth. The fastest-growing economy in the world saw its gross domestic product expand by 8.2% in fiscal 2024.

The International Monetary Fund projects that India’s economy will grow 6.8% in 2024 and 6.5% in 2025, compared with China’s growth outlook of 5% in 2024 and 4.5% in 2025.

“PM Modi will have to flex his muscles against adversaries like China. That will involve signaling support for indigenous defense manufacturing capabilities,” Samir Kapadia, CEO of India Index and managing principal at Vogel Group, highlighted.

In the BJP’s manifesto for the upcoming term, Modi said the government would make India one of the world’s top three economies, aggressively fight poverty, open up new avenues for growth and combat corruption. 

“We have gone from a nation that was in the ‘Fragile Five’ to a nation that is one of the top five economies of the world,” he said in the manifesto. 

While India has seen robust economic growth under Modi, observers and critics have warned about the country’s “democratic decline.” 

“The ruling anti-pluralist, Hindu-nationalist Bharatiya Janata Party (BJP) with Prime Minister Modi at the helm has, for example, used laws on sedition, defamation, and counterterrorism to silence critics,” Sweden-based V-Dem Institute said in a 2024 report. 

Others, however, have pointed to the giant electoral exercise in the country as a testimony to its strong democratic fundamentals.

“The election also shines a light on India as a rising star that’s built on democracy, and I’m glad that it is bringing a lot of attention to all the dynamic growth that we’re seeing in the country right now,” said Malcolm Dorson, senior portfolio manager and head of emerging markets strategy at Global X ETFs.

Correction: Samir Kapadia is managing principal at Vogel Group. An earlier version misstated the name of the firm. Malcolm Dorson is senior portfolio manager and head of emerging markets strategy at Global X ETFs. An earlier version misspelled his name. This story has been updated to clarify that the IMF has a China growth outlook of 5% in 2024 and 4.5% in 2025.

— CNBC’s Vinay Dwivedi and Sumathi Bala contributed to this story.