United States, the largest economy in the world has long been lauded for its exceptionalism in continuing to remain resilient in the face of all odds- macroeconomic, political, societal and what have you. By the same token, India, the largest democracy of 1.4 billion people ought to be recognized for its exceptionalism in becoming the fifth largest economy (ranked ninth a decade ago) notwithstanding economic disparities of gargantuan proportions and unparalleled diversity across cultures, languages, customs/traditions/social practices, food habits, religious beliefs and much more than one can succinctly summarize.

However, India’s “unity in diversity” mantra did not quite play out in the recently concluded parliamentary elections where BJP, the incumbent ruling party did not secure an absolute majority as in 2019. So, it begs the question, why?

The election results also tell us that the BJP would return to power with support from two coalition partners infamously known for being fair-weather friends. At the same time, it would face bigger opposition from a loose alliance of 20+ political parties called I.N.D.I.A. that came together in the run up to the elections with a singular purpose of dislodging Mr. Modi from his perch and reclaiming their political careers. For many investors, India and Modi are synonymous and therefore the key question on many investors’ minds is how Modi would work with coalition partners and a hostile opposition to pursue his reform agenda driving many investment theses.

Based on my interpretations and understanding of happenings on the ground with the benefit of my Indian upbringing and global investment perspectives, I think that BJP winning the single largest majority of 44% of parliamentary seats, is quite telling in that Modi continues to enjoy a fan following of a growing middle class and a thriving business community who have enjoyed the gains of Modi’s progressive outlook and actions and ardently believe in his growth agenda. They celebrate his departure from two decades of socialist principles advocated by fractured coalitions and commend him for making rapid strides towards a goal of becoming the third largest economy by 2027 and eventually a $30 trillion developed economy by 2047. They are proud that Modi has risen above the mundane and put India on the world map, positioning India as an indispensable strategic, economic, and intellectual power to be reckoned with. Thus, his diminished majority for them is not so “humbling” after all that some/his opposition are making this out to be.

On the other hand, those who did not vote for him this time around are largely the underprivileged, uneducated masses living in villages and city slums struggling to afford necessities like food, electricity, water, healthcare, school fees etc., some even weighed down by usurious debt from loan sharks! So, did these people vote of their own volition to express their dissatisfaction, or did they fall victim to political propaganda?

Unfortunately, they did. Modi’s opponents who had been sitting on the sidelines for long watching his personal and the country’s glory soar to newer heights powered by his growth-led agenda, were quick to fan the flames of frustration of the poor inciting them with narratives that Modi speaks for the Ambanis and Adanis overlooking their needs when actually 28% of the population has been lifted out of abject poverty in the last decade. His opponents succeeded in enticing the underprivileged with old practices of promising handouts, concessions, cash transfers, assured government jobs, loan forgiveness, protection of minority rights (education/job quotas,), etc. brainwashing them into undermining the benefits from all BJP-led structural improvements e.g. building toilets (yes toilets!), access to cooking gas, financial inclusion programs, small job opportunities etc. over the last decade. Touching their raw nerves, they also played the “minority card” given that the impoverished masses are quite concentrated among the religious and ethnic minorities predominantly in the north (the more affluent and educated south marching to the drumbeat of its own regional politics often with an anti-north bias). What also worked to their advantage was the BJP’s ill-timed Hindutva rhetoric to revive India’s cultural heritage which the opposition exploited as a rebuke to the faith of religious minorities.

Therefore, what some deem to be “a triumph of democracy”, “voters’ voice”, etc. was not quite so when many gullible people were misled, misinformed, and compromised to lend their voice/votes. In an odd way though, it vindicates Modi as the authoritarian, he was alleged to be.

Consistent with Modi’s structural reforms to solve for issues including poverty, he has implemented policies to position India as a value-add manufacturing hub, a proven way to transform economies as in the case of Japan, China and other Asian countries. For that matter, even in the US, promoting onshoring of local chip manufacturing, building local EV and clean energy supply chains, etc. are all geared toward creating local jobs, spurring consumer spending, attracting capital flows, and turbo-charging the wheels of the overall economy.

But the irony is that even if India’s manufacturing (currently less than 15% of GDP) kicks into high gear magically creating jobs overnight, many unemployed including the youth would remain entangled in a complex web of rampant illiteracy and myths, fatalistic attitudes, a false sense of entitlement (to long tenured government jobs with benefits), and resistance to change and upskilling. Add to that, religious and cultural biases, uncontrolled births, gender inequality (women not allowed to work outside the house), a communal (vs. an individualistic) social order, which all act as self-imposed barriers to improving one’s lot.

So going forward Modi has his work cut out for him. Can he leave so many far behind in his march towards attaining even greater heights for India or does he allow the rest of the country to be held hostage to those despondent along with their backers eager to implement regressive socialist policies of handouts and entitlements, in a bid to secure their electoral bases? From what the world has seen, Modi is a strategic thinker with a relentless drive to do and deliver. But it still remains to be seen:

a) How Modi pivots from functioning as a sole/key decision maker thus far to retaining the support of his coalition partners (constituting a 50%+ simple majority to pass most bills in the House) to pursue his growth agenda.

b) How the loose 20+ member I.N.D.I.A. alliance sticks together overcoming any potential infighting/power grab which could weaken their bargaining power to offer stiff resistance to BJP’s growth agenda. With no other major policy agenda (besides appeasing the poor) articulated at any time during their election campaign, it remains to be seen what bipartisan support or constructive discourse they can provide on important issues -economy, defense, industry etc.

c) How Modi manages the opposition to enact land reforms especially in the states that many of his political opponents represent. This would be key to pursuing his manufacturing-driven growth agenda and in turn creating private sector jobs.

d) How he enacts labor reforms (for small businesses to scale up and down as in a free market economy) and create jobs in the interim to alleviate the pain of the unemployed especially the disillusioned less-skilled youth. In this regard, vocational training and accreditation could go a long way to build dignity of labor and bring millions of informal workers into the organized labor force.

e) How does he tone down the Hindutva rhetoric especially of fringe elements within the BJP.

In other words, global investors who recognize that India is too important (on multiple dimensions) to ignore, cannot just bet on one man to ride the India bull wave but would need to monitor local Indian politics like probably nowhere else. One more thing that makes for Indian exceptionalism!
Yours truly,
Kamal Suppal, CFA
Chief Investment Auditor
June 7, 2024
The above content is intended for sophisticated audiences as in institutional investors or family offices. Readers are advised that any theme or idea discussed above is not an offer to buy or sell any investment.