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Nov 19, 2018 | 11:00 GMT

7 mins read

Modi Plays the Populist Card as India's Elections Near

Samajwadi Party candidate Nagendra Pratap Singh Patel, center, celebrates with supporters in Allahabad after winning election to India's lower house of Parliament on March 14, 2018.
(SANJAY KANOJIA/AFP/Getty Images)
Highlights
  • Prime Minister Narendra Modi's aim to win re-election in 2019 means his administration will selectively resort to Hindu nationalism and safeguard jobs in the small-business sector while advancing populist measures like "Modicare."
  • The fractured opposition will be willing to make compromises to unify in an attempt at forging a grand alliance aimed at dislodging Modi from power.
  • A return to a coalition government would hinder New Delhi's ability to pass key land and labor legislation needed to spur on the country's industrialization.
  • On foreign policy, the government will seek to improve relations with China to minimize politically costly foreign policy distractions ahead of the elections, although it is likely to take a harder line against Pakistan.

Editor's Note: This assessment is part of a series of analyses supporting Stratfor's upcoming 2019 Annual Forecast. These assessments are designed to provide more context and in-depth analysis on key developments in the coming year.

The world's largest election is fast approaching. Starting in April 2019, hundreds of millions of Indians will head to the polls to choose 543 representatives to serve in the Lok Sabha, the country's lower house of Parliament. For Prime Minister Narendra Modi, leader of the ruling Bharatiya Janata Party (BJP), the elections will serve as a referendum on his five years in office. The BJP surged to victory in 2014 by winning 282 seats, dealing a humiliating loss to the incumbent Indian National Congress (INC), which picked up a paltry 44 seats — its worst-ever performance. The BJP's majority in the Lok Sabha also broke the enduring spell of minority governments, which had been a hallmark of Indian politics since the coalition era began in 1989.

The Big Picture

India is the world's largest democracy. For Prime Minister Narendra Modi, widely viewed as the most powerful Indian leader in a generation, next year's elections will represent a critical juncture for his ruling Bharatiya Janata Party as it faces an emboldened opposition determined to deny Modi a repeat of his landslide victory in 2014. The outcome of the elections will shape the government's ability to legislate key land and labor reforms needed to spur on India's lagging industrialization.

But Modi will have to slog through a tough election season against an opposition buoyed by its own victories, as well as the opportunistic alliances that the INC and regional outfits have forged. Facing economic headwinds and lackluster job growth, Modi will rally his conservative base by selectively resorting to Hindu nationalism and maintaining high tariff barriers to protect domestic industry, all while the opposition seeks to build alliances to dislodge Modi from power.

The Stakes for Business

After China, India is the world's largest emerging market — and the sixth largest of any kind — thanks to its $2.6 trillion economy. After coming to office, Modi unveiled his "Make in India" program to position the country as a premier manufacturing hub, boost manufacturing's share to a quarter of economic output and create tens of millions of jobs along the way. But if Modi's ambitious campaign is ever going to meet its objectives, he will need to accelerate land and labor reforms to spur on the country's lagging industrialization. While any administration in New Delhi will push for these goals — indeed, the INC introduced Make in India's forerunner, the National Manufacturing Strategy, in 2011 — the BJP has enjoyed past success in pushing through pro-business legislation, such as when it passed the Goods and Services Tax (GST) last year thanks to the BJP-led National Democratic Alliance's majority in government. Needless to say, if the BJP-led alliance fails to win a majority next year, it — or any coalition government, for that matter — will have a much harder time advancing its legislative agenda. 

The Opposition's Search for Unity

India's opposition is employing at least two strategies to dent Modi's prospects, the first of which focuses on corruption. Modi's famously robust stance against graft help propel him to victory in 2014 against the INC-led United Progressive Alliance, whose decade-long tenure under Prime Minister Manmohan Singh was hobbled by numerous corruption scandals. Now, INC chief Rahul Gandhi is trying to turn the tables on Modi, alleging that the government favored a private sector firm, Reliance Aviation, for a joint venture with France's Dassault Aviation as part of a 2016 deal to construct Rafale fighter jets. Former French President Francois Hollande has since added more fuel to the fire by claiming that Modi gave his government no choice but to partner with Reliance. (Gandhi is also trying to link a corruption scandal in India's Central Bureau of Investigation with the Rafale jet deal.)

A chart showing major party transitions in India's lower house of Parliament, 2009-2014

Second, the INC is also forging electoral alliances with the likes of West Bengal's Trinamool Congress Party and Tamil Nadu's AIADMK, with the sole objective of denying Modi a second term. The sheer multiplicity of parties in India — 36 currently sit in the Lok Sabha — means alliances are a common way for two or more parties to agree on seat-sharing. In Karnataka's state elections in April, for instance, the BJP won a plurality of seats, but the INC formed the government after it agreed to a coalition with a regional party, the Janata Dal (Secular). And in Uttar Pradesh, India's most populous state, two major left-leaning rivals, the Samajwadi Party and the Bahujan Samaj Party, are entering an alliance for 2019 after their unlikely partnership in special elections yielded two parliamentary victories. If they are successful, the two parties could take a major dent out of Modi in Uttar Pradesh, 71 of whose 80 seats went to the BJP in national elections in 2014.

Modi's Populist Ploy

The BJP has taken a variety of steps to maximize its chances of winning re-election. Reflecting its Hindu nationalism, Uttar Pradesh Chief Minister Yogi Adityanath has renamed Allahabad — a Hindu holy city bearing a distinctly Muslim name — with the Hindu-inflected "Prayagarj." He has also renamed the Faizabad district after one of its towns, Ayodhya, a locality in which Hindu nationalists have demanded to construct a temple to Ram over the ruins of the 16th-century Babri Mosque.

The government also unveiled the "Ayushman Bharat — Pradhan Mantri Jan Arogya Yojana" — the world's largest health insurance scheme — in September. Known as "Modicare," the initiative will provide $6,700 in annual insurance coverage for up to 500 million lower-income Indians. And earlier this month, Modi unveiled a support package for the country's micro, small and medium enterprises (MSME) sector, which employs 120 million people, after it suffered disproportionately because of India's demonetization campaign in November 2016 and the introduction of the GST last year. As part of the package, Modi has authorized officials to approve loans of up to $138,000 for such businesses in less than one hour.

The government's move to ease smaller-scale businesspeople's access to capital is also a factor in its ongoing tussle with the Reserve Bank of India (RBI). Among other demands, Modi wants the bank to loosen the lending restrictions it has placed on 11 of India's 21 state-owned banks, but that has put him on a collision course with RBI chief Urjit Patel, who is spearheading the effort to nurse the banks' debt-saddled balance sheets back to health. Finally, India's resistance to further tariff liberalization as part of the Regional Comprehensive Economic Partnership (RCEP), a proposed free trade agreement in the Indo-Pacific, is in part aimed at protecting the MSME sector. With elections approaching, Modi will avoid any RCEP proposals that could imperil his chances with these voters.

On Kashmir, the disputed territory at the heart of the Indo-Pakistani rivalry, the BJP's decision to withdraw from its tenuous three-year coalition government with the People's Democratic Party — which favors dialogue with Kashmiri separatists — has enabled the prime minister to adopt a harder-line security policy against militancy. In contrast to his stance on Pakistan and Kashmir, Modi will aim to ease tensions with Chinese President Xi Jinping, as he can ill-afford any confrontations with China over territory like 2017's Doklam standoff in the run-up to elections.

What's Ahead

Modi remains the most formidable politician in Indian politics. And the outsized role of personality in India's electoral campaigns means his BJP is in the pole position as it competes against an emboldened opposition desperate to oust the 68-year-old leader. Even though Modi has failed to produce jobs on a mass scale, he will argue that his party deserves another term and that the opposition's tactics are merely an act of desperation that masks its lack of solutions to India's challenges. Whatever the outcome, it is a measure of the BJP's dominance that the party, which went from a mere two seats in 1980 to 282 seats in 2014, is the one to beat.

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