India—Prime Minister Modi likely to retain power; reforms are expected to continue

India, Australia’s 5th largest export market, has held elections for its Parliament’s lower house. The 900 million voters picked their 543 representatives between 11 April and 19 May. Prime Minister Narendra Modi’s BJP party is hoping to retain a strong majority after a landslide victory in the 2014 election. His opponent in 2014, Congress’s Rahul Ghandi, is again leading the main opposition alliance. Exit polls suggest Prime Minister Modi will remain in power.

During his term in office, PM Modi has reformed insolvency and bankruptcy laws, simplified the tax code, reduced corruption and streamlined foreign investment regulations. These have improved the business climate (Chart). But economic growth remains around 7.5% p.a., which isn’t enough to significantly reduce poverty. The growing unemployment rate, high public debt and weak balance sheets of banks and corporations pose risks to the outlook.

To lift growth, the OECD and the IMF recommend the government reform the country’s labour laws, streamline land acquisition and litigation procedures, improve contract enforcement and simplify several other business regulations. Investment in infrastructure and in the agricultural sector are also key. But PM Modi has a track record of implementing complex reforms. He will need to show similar resolve this time around to unleash India’s economic potential.