By Akshay Mathur

Indian Prime Minister Narendra Modi was sworn in with his team of ministers in a grand ceremony at the Rashtrapati Bhavan on June 9, 2024. The occasion marked only the second time in India’s history, after Jawaharlal Nehru, that a leader had been reelected for a third consecutive term.

India’s national elections are no small feat. Of the 970 million registered voters, 642 million voted for 8,360 candidates representing 744 political parties this year.

Modi’s Bharatiya Janata Party (BJP) won 240 seats in the 543-seat parliament, short of the 50% majority required to form a government on its own. It was a diminished victory, which felt more acute because of the BJP’s clarion call to secure 400 seats during the campaign. The BJP’s 240 mark is less than the 282 seats it won in 2014 when Prime Minister Modi first came to power, and markedly less than the 303 seats won in 2019 when he was elected a second time. This time around, the BJP had to rely on its coalition partners to form a majority. This coalition, the National Democratic Alliance (NDA), holds 292 seats – a comfortable majority and well past the 272 required to form a government.

Politics, the State, and the Markets

Investors are often skittish about coalition politics. Therefore, when the results trickled in, the financial markets priced in BJP’s weaker mandate. The Nifty, the benchmark index of the National Stock Exchange of India, lost 5.9%, and the Sensex, the benchmark index of the Bombay Stock Exchange, lost 5.7%, erasing nearly $374 billion. Public and private sector enterprises focused on energy and infrastructure were the hardest hit, given their dependence on government policies and regulatory certainty. Foreign investors also signaled their anxiety by selling off $1.4 billion next day in portfolios.

As India celebrates this ‘festival of democracy,’ its policymakers are keenly aware that the world is watching and wondering how the weaker mandate will impact the country’s economic growth and foreign policy.

At an NDA meeting on June 7, 2024, at which alliance members pledged their support to Prime Minister Modi, he reminded the nation of the deep collective political experience of the alliance and reiterated his promise to make India the third-largest economy in the world. Modi has reappointed his ministers for finance, external affairs, defense, commerce, industry, and information technology, presumably to demonstrate continuity. The signaling was enough for India’s markets to make up the losses by the third day.

Prime Minister Modi has teed himself up for a strong start. India’s growth rate was recently revised upward to 8.2% for financial year 2024, the highest rate among large economies globally, and its fiscal deficit was revised downward to a comfortable 5.8%. India’s consumer inflation rate stood at 4.9% in April 2024, which is within the central bank range of 2% to 6%. The current account deficit clocked a manageable deficit of 1.2% for the third quarter of financial year 2024, and foreign exchange reserves stood at $651.5 billion in June, behind only China and Japan but above that of oil producers such as Russia and Saudi Arabia. Earlier this year, India’s financial markets overtook Hong Kong to become the fourth largest globally, after the United States, Japan and China, and ahead of UK, France, and Germany.

Taken together, these macroeconomic indicators provide the necessary ballast for Prime Minister Modi to steer India through a complex global economy that is still reeling from the COVID-19 pandemic, trade wars, conflicts, climate change, and sanctions.India’s Chief Economic Advisor, Anantha Nageswaran, encouraged investors to see the opportunity, explaining that “election outcome increases the probability of factor market reforms happening,” alluding to the strong performance of the regional parties in the elections that can drive sub-national reforms.

International Reactions and the Broader Geoeconomics and Geopolitics at Play

Since counting day, congratulations have been flowing in for Modi. Among the first to wish him well were the leaders of the major powers — the United States, Russia, France, and Italy — and neighbors Sri Lanka, Bangladesh, Mauritius, Nepal, and Bhutan.

Modi begins his third term during an era of intense geoeconomic and geopolitical rivalry. The incredible power competition between the United States, China, and Russia; the war between Russia and Ukraine, which has reactivated NATO; the conflict between Israel and Hamas, as well as proxy wars in West Asia; attacks on merchant ships in the Red Sea; ongoing instability in Afghanistan and Pakistan; heightened tensions in the Taiwan Strait — all are indications of the treacherous road ahead for global governance.

While India’s engagement in these geopolitical hotspots may seem tangential, the country has direct stakes in these conflicts. In 2022, India had to evacuate 18,282 nationals from Ukraine. Similar evacuations were carried out for Indian nationals stuck in Afghanistan (2021), Yemen (2015), Sudan (2023), and Israel (2023).

Testaments of responsive leadership are important for the diaspora. A 32 million diaspora remits $125 billion back home, nearly three times India’s total foreign direct investment annually. Cultivating the diaspora became a defining characteristic of Modi’s foreign policy during his second term.

However, India is also cognizant of the implications of these conflicts for global governance. In his congratulatory message, Ukrainian President Volodymyr Zelenskyy did not miss the chance to reiterate his invitation to Modi to attend the Global Peace Summit in Switzerland on June 14–15, 2024, hoping that India would serve as an intermediary as other nations cannot.

Expectations of Modi are high at the G7 Summit on June 13–15 in Italy — the first official engagement of his third term in office. So far, India has strengthened its defense, economic, scientific, and strategic relations with the West without burning bridges with Russia, its historical ally. Jake Sullivan, the US national security advisor, was quick to announce his plans to visit India as soon as the results were announced after having postponed his trip twice earlier this year, indicating that the United States is ready to get back to work with India. His visit will be keenly watched for a timeline of the India-U.S. 2+2 (foreign and defense ministers) meeting and the overdue Quad Leaders’ Summit (with Japan and Australia). 

India’s Geoeconomic Imperatives

Indian policymakers know that the West remains India’s primary source of capital. The United States alone accounted for nearly $5 billion in foreign direct investment equity flows in financial year 2024. It is also the largest source of foreign portfolio investments, with $338 billion in assets under custody, accounting for nearly 40% of the total foreign investments in India’s financial markets in April. Almost 70% of investments in India’s 112,000 startups are funded from abroad, many by U.S.-based venture capital funds.

Earlier this year, Jamie Dimon, CEO of JPMorgan Chase, praised Prime Minister Modi at an event at the Economic Club of New York, remarking that “Modi has done an unbelievable job in India.” The assessment follows JPMorgan’s announcement in September 2023 that it would include Indian bonds in the emerging market index, which is expected to attract $25 billion to India, double the current annual intake. Bloomberg made a similar announcement in March 2024. If Modi’s new coalition government can retain fiscal discipline, these inflows will follow.

Wooing foreign inflows from the United States will also require India to accommodate US foreign economic policy. So far, India has complied with the price cap on Russian oil imposed by the G7, which forces Russia to sell its crude oil below $60 per barrel. Since the sanction was declared, Russia has become India’s largest source of crude oil imports. Securing oil at discounted rates has been critical for India’s energy security as well as for other nations that depend on the refined petroleum products that India exports to Europe, the Gulf, Southeast Asia, and the United States. Indian refineries have raked in a combined profit of $10 billion for fiscal year 2024, their highest-ever total.

Within the G7, France has clearly emerged as a defining relationship with deep partnerships in defense, nuclear, and scientific cooperation. The French president was invited as the chief guest for India’s Republic Day for a record sixth time in 2024. Japan remains an unflinching partner in economic development and a fellow partner in the Quad. It supports Modi’s signature project, a bullet train between Mumbai and Ahmedabad (Gujarat), which is expected to be completed by 2027. Italy is also emerging as a new ally, a relationship primarily cultivated by Prime Minister Modi in the last few years. 

India’s Geopolitical Imperatives

Arguably, India has strengthened its relationships with every nation in the G20 except two: China, a historic rivalry amplified by a $85 billion deficit in bilateral trade, and, more recently, Canada, where domestic support for Khalistani separatist leaders has become a threat to India’s national security interests. A report by a high-level Canadian parliamentary committee released the day after the announcement of India’s election results made a startling claim that India is the “second biggest threat to Canada’s democracy” after China, prompting speculation about the report’s timing and motive. Canadian Prime Minister Justin Trudeau signaled his view of Modi’s victory in a veiled tweet, calling for strengthening of the bilateral relationship, “anchored to human rights, diversity and the rule of law.” Modi thanked Trudeau with an equally telling message, calling for “respect for each other’s concerns.”

Meanwhile, China’s subdued felicitation, at first, came only through its Foreign Ministry and its ambassador in Delhi. Chinese Premier Li Qiang’s wishes followed after Modi took office. What made news, instead, was the congratulatory message from Taiwanese President Lai Ching-te to Modi, which was challenged by the Chinese government, apparently alarmed by the direct official exchange between India and Taiwan. 

India’s ‘New Age’ Technology Alliances

China’s hostility has catalyzed India’s relationships with ‘silicon nations’ in East Asia and crystallized partnerships with other democracies for whom technology and security of supply chains have taken primacy.

Examples of this deepening partnership include the India-U.S. agreement on the Initiative on Critical and Emerging Technologies (iCET) signed in May 2022, the establishment of the India-EU Trade and Technology Council in April 2022, the launch of the India-U.S.-South Korea Trilateral Technology Dialogue in December 2023, the Quad’s Principles on Critical and Emerging Technology Standards in May 2023, and the Indo-Pacific Economic Framework established in 2022 that enjoins the United States and 14 democracies in Asia focused on trade, supply chains, clean energy, and a fair economy.

A similar ‘new-age agreement’ was signed on June 6, 2024, between India, South Korea, the European Union, and the United States to launch a biopharmaceutical alliance. The objective is to secure raw materials and supply chains to address the horrifying revelation of India’s dependence on China for nearly 70% of its active pharmaceutical ingredients during the pandemic. The iShares MSCI Emerging Markets ex-China ETF, a benchmark indicator of global interest in firms outside China, with over 30% invested in technology firms, has grown to a total valuation of $13.65 billion since it was established in 2017 — tangible evidence of corporate interest in alternatives to China.

Significantly, Modi’s largest alliance partner, Chandrababu Naidu of the Telugu Desam Party, was celebrated as India’s first ‘technology leader,’ admired for being the first to lure Microsoft to Hyderabad in 1997, establishing the city as India’s software capital. Today, India boasts 114 unicorns with $350 billion in valuation, 1,580 global capability centers, and the world’s largest talent pool in information technology. If Naidu retains the same zeal, Prime Minister Modi can make more ambitious plans for his signature “Digital India” programs.

India’s role in the global tech arena has expanded under Modi, who has personally courted the CEOs of global technology firms such as Google, CISCO, Meta, Microsoft, Adobe, IBM, and Tesla during his trips abroad — many of whom are of Indian descent. Elon Musk stood out as one of the first CEOs to congratulate Modi, stating that he is looking forward to doing “exciting work in India” and hinting at possibly establishing a manufacturing plant that has long been underway. Bill Gates tweeted a similar message, expressing admiration for Modi’s focus on innovation and digital transformation. 

India’s Neighborhood

Within India’s extended neighborhood, Bangladesh and Sri Lanka were among the first to send their wishes and to be invited to the swearing-in ceremony. In response to Sri Lankan President Ranil Wickremesinghe’s wishes, Modi underlined India’s credentials as a “dependable” partner, hinting at the $4 billion in credit that Sri Lanka has received from India since 2022 amid the worst financial crisis the nation has faced, at a time when Chinese help was underwhelming. India’s support for Sri Lanka has included a currency-swap agreement and lines of credit for fuel, fertilizers, essential commodities, and trade.

Pakistan and Afghanistan were not invited to the swearing-in ceremony. Pakistan’s delayed felicitations came tactfully after Modi’s swearing-in with a message from Nawaz Sharif, president of the ruling party, who called on Modi to “replace hate with hope,” along with a more muted congratulatory tweet from Prime Minister Shehbaz Sharif. Pakistan found little space in the election manifestos, campaigning, or voter preferences — a stark difference from Modi’s last two terms, when headlines were dominated by India’s ‘surgical strikes’ in 2016 and a bombing raid in 2019 across the Line of Control in Pakistan-occupied Kashmir in response to terrorist attacks in India by Pakistan-based terrorists. A terrorist attack in Jammu and Kashmir as the swearing-in ceremony was underway, carried out by the Pakistan-based “The Resistance Front”, killed nine Indians and left 33 injured. The news came as an eerie reminder of the challenge that India faces at its western border. Unsurprisingly, Modi thanked Sharif, emphasizing the “security of our people” as a priority. For now, India’s relations with Pakistan, as well as with Afghanistan, remain in stasis, kept alive, reportedly, by back-channel meetings.

Other dignitaries present at the swearing-in ceremony included the prime minister of Nepal, prime minister of Bhutan, president of Mauritius, vice president of Seychelles, as well as the president of Maldives, despite having won election on a staunch “India Out” campaign.

Expectations, Partnerships, and the Road Ahead

While domestic issues like unemployment and agricultural reforms will take precedence in the short run, as India’s global engagement expands, a key expectation of Prime Minister Modi in this third term will undoubtedly be to initiate, evangelize, and protect India’s interests abroad. India has nearly $325 billion in equity, portfolio, and debt investments abroad. For instance, Indian public and private enterprises have interests in foreign energy assets (e.g., Azerbaijan, Colombia, Myanmar, South Sudan), ports (e.g., Israel, Iran), and airports (e.g., Philippines, Indonesia). ONGC Videsh alone has interests in 32 oil and gas assets in 15 countries. The Indian Navy is already defending merchant vessels, both Indian and foreign, in the Red Sea against attacks along this maritime route, which accounts for over 40% of India’s trade.

Therefore, calls from foreign leaders for India to play a larger role in global governance also have domestic resonance. Under Prime Minister Modi, India hosted the G20 (2023), was elected president of the United Nations Security Council twice (2021, 2022), hosted BRICS twice (2016, 2021), and chaired the Shanghai Cooperation Organisation (2023). Modi has already made a bid to host the COP climate talks in 2028. India’s foreign minister, Dr. Subrahmanyam Jaishankar, recently underlined India’s enormous engagement with the Global South, recalling the development projects that India is supporting in 78 countries and its provision of COVID-19 vaccines to 99 nations during the pandemic.

Prime Minister Modi’s larger role in global affairs is admired at home, welcomed by allies, and envied by rivals. In this age of intense geoeconomic and geopolitical rivalry, Modi has a mandate to represent the hopes and aspirations of the entire nation on the world stage.