Business executives in the United States are frantically making calls in an attempt to better comprehend the impact that Modi’s party’s inability to gain a supermajority would have on India’s economy and investment environment. This is a devastating electoral loss for Indian Prime Minister Narendra Modi.

“Indian voters make excellent educators.” The politicians, exit pollsters, and market observers have all been taken aback by them, according to Venugopal Garre, managing director of AB Bernstein, in an email to clients.

As they focused on the Indian market over the past few years, CEOs from some of the largest US corporations have spent time and money cultivating ties with Modi.

Among the well-known businesses that have struck agreements to grow, produce, and market their goods domestically are GE Aerospace, Apple, Starbucks, and Nvidia.

“India has been the go-to destination for U.S. tech juggernauts as China slows down,” said Pramit Chaudhuri, head of Eurasia’s South Asia practice, in a Tuesday interview with CNBC.

Following the unexpected election results, the Indian stock market fell down on Monday, seeing its worst decline since 2021.

Rahul Sharma, an emerging markets portfolio manager at $6 billion asset management company Shafer Cullen, described the result as “a clear negative that is likely to create an overhang on the market over the near term.”

Sharma, meanwhile, continues to be a long-term bull on India due to the nation’s robust demographic profiles.

“Remember the enormous potential of the nation, which still has a very low per capita income and many advantages, like a large, youthful, and reasonably educated labour force,” Sharma remarked.

The inability of Modi’s party to win a supermajority also begs fresh concerns over the government’s larger economic goals.

Specifically, if the changes that have been promised would be passed quickly, as Modi had promised throughout his campaign.

“Coalition governments always encounter difficulties, particularly when formulating economic strategies,” the India team at Asia Society noted in a client note.

An anonymous former government source told CNBC that “most economic reforms will require the Indian leader to persuade…negotiate…work with parties across the aisle which could elongate the timeline in getting things done.” The insider was speaking about private talks.

Modi’s ability to go from leading a supermajority to forging consensus is the matter at hand.

By 2027, Modi wants India’s economy to rank third in the world. Its economy, which is presently the fifth largest in the world, expanded by 8.2% in the fiscal year that ended in March.

However, India’s stunning GDP from the previous year masks a high unemployment rate that is destroying young workers’ chances for a successful career and forcing millions of people to return to rural areas.

According to Chaudhuri, of Eurasia, “the nation’s unemployment situation definitely contributed to a tighter election.”

Voters’ top concern, according to TS Lombard analysts, is a “lack of jobs as [the] labour market recovery is not yet broad-based,” they stated in a letter to clients on Tuesday.

Now that the Bharatiya Janata Party, or BJP, does not have an absolute majority in Parliament, one of the labour laws that Modi’s government had planned to amend may not be put into effect.

Modi’s suggested changes would have eliminated additional obstacles to a more flexible labour market and streamlined the regulations governing hiring and discharging employees.

According to some observers, the implementation of important changes related to land acquisition and agriculture can take longer than anticipated. Infrastructure development should go on, but maybe more slowly than in other industries.

The recent changes in the Indian Parliament’s governance structure may need a short-term reset of business expectations in the US. Under a coalition government, some changes can take longer to complete.

However, analysts claim that American businesses continue to view India as a key component of their long-term plans to diversify their supply chains and production beyond just depending on China.

Former Reserve Bank of India governor Raghuram Rajan stated, “I don’t think the election results should affect the U.S. corporate expansion into India.”

“Investments from the United States have never been coming in because of reforms, that would affect that investment,” he continued. Rajan teaches finance at the Booth School of Business, University of Chicago, at the moment.

The BJP’s “aggressive Hindu nationalist” language is expected to moderate after the election, according to Sharma of Shafer Cullen, “which will reduce divisiveness and tension in the country.” 

The Indian president has come under fire for the way his administration suppresses political dissent and for how he treats minorities, such as Muslims and Sikhs.

Tom Miller, an analyst at Gavekal Research, said on Wednesday that the election results “may leave India in a more secure place socially if it dissuades the BJP from pursuing hardline Hindu nationalist policies.”

The annual budget announcement on July 1st, following the formation of the new government, is expected to be a major event, according to Jitania Kandhari, head of macroeconomic research for Morgan Stanley’s emerging market equities team.

In an email to CNBC, Kandhari stated, “This will set the tone and reaction of the new government (in terms of spending priorities).”

(Adapted from CNBC.com)

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