The coalition reset

The new govt must adopt a consultative approach

The biggest takeaway from the results of the 18th Lok Sabha elections is that no election in India is a done deal till the last vote is counted. Proving most exit polls wrong, the results have clearly shown elections in India remain as competitive as ever. It’s also noteworthy that while the campaign was long and became bitter after the initial rounds, which should have been avoided, casting aspersions on the election process and questioning the electronic voting machines were unnecessary. Although the outcome will be analysed for days and weeks to come, at the time of going to press, the Bharatiya Janata Party (BJP) had won or is leading in 240 seats and is short of the majority mark. The BJP-led National Democratic Alliance (NDA) is, however, in a comfortable position to stake claim and form the next Union government. India will get a coalition government after a decade.

In important states that went to the polls simultaneously with the Lok Sabha elections and where the results were declared on Tuesday, the NDA made big gains and managed to defeat the incumbents. In Odisha, the Biju Janata Dal, which was in power for 24 years, lost, with the BJP winning about 80 seats in a 147-member state Assembly. In neighbouring Andhra Pradesh, the N Chandrababu Naidu-led Telugu Desam Party, which is part of the NDA, swept the Assembly polls and was in a comfortable position to form the next state government. At national level, while the BJP broadly retained its vote share, it could not hold on to the 2019 tally. The Congress, on the other hand, improved its vote share by about 3 percentage points and nearly doubled its seat tally. The BJP made inroads in states like Odisha, but it lost ground in the so-called Hindi heartland, particularly in Uttar Pradesh. Further, given the tally in Haryana and Maharashtra, it will be worth watching what happens in the Assembly elections in these two states due in a few months.

On the economic front, while many believe a coalition government can slow the reform process, which was reflected in the sharp drop in benchmark stock-market indices, it is worth remembering that the economic-reform process was started in 1991 by a minority government and followed up by successive coalition governments till 2014. Greater consensus building will now be required, which may inevitably delay some decisions but will have greater political acceptability. Further, it will also be important to take states on board to push economic reforms. Cooperation between the Centre and the states in the Goods and Services Tax Council had given hope that both levels of government would be able to take the reform process forward in other areas as well. But this clearly didn’t happen. The next Union government would thus be well advised to revive the institutional mechanism, perhaps through the NITI Aayog or by devising a new process, to cooperate with states on policy issues. This will help push long-pending reforms in areas, such as land, labour, and agriculture. Notably, India now has a strong Opposition after a decade and it will be important for both the Treasury and Opposition Benches to respect each other’s positions.

As things stand, the broader economic parameters are favourable. The Indian economy expanded by 8.2 per cent in 2023-24, the third consecutive year of 7 per cent or above growth. The outlook for the current year is also favourable and forecasters expect the economy to expand by about 7 per cent, supported by a normal monsoon. The inflation conditions have improved, while the banking and corporate balance sheets have strengthened significantly over the past few years.

However, technically, it’s worth highlighting that growth in recent years has been driven largely by higher government expenditure, which has limits. While the government will be in a comfortable fiscal position this year, it will have to consolidate its finances. It will thus be important for the private sector to fill the space vacated by the government to sustain economic growth. The private sector thus far has been reluctant to increase investment significantly, partly because of weak private consumption. One of the reasons for weak consumption is the nature of India’s job market. While the headline unemployment rate has been declining, most people are engaged in low-productivity occupations like agriculture or are self-employed, running very small enterprises.

Pre-poll surveys also clearly indicated that employment was one of the biggest issues among voters. Further, the results also raise questions about the limits of schemes like distributing free food grains in the absence of productive employment for India’s rising workforce. To address the employment issue, it will be crucial for the next government to push manufacturing, which can absorb a large number of low-skilled workers. Aside from domestic demand, India will have to focus on merchandise exports, which will require a thorough review of the trade policy. Higher tariffs are incompatible with the country’s participation in global value chains, which is essential to push exports and generate employment. While a lot will now depend on the new government’s composition, structure, and stated programme, it will certainly benefit from improving capacity in economic policymaking and increasing consultations.