India begins its third consecutive term under Prime Minister Narendra Modi, with attention now on how the government will tackle the challenges and seize the opportunities ahead. 

Samir Kapadia, Founder & CEO of India Index, provides insights into the government’s potential priorities as it works to sustain economic momentum and achieve Modi’s vision of a developed India by 2047.

Navigating a Weakened Mandate

Despite Modi's continued leadership, confidence in the Bharatiya Janata Party (BJP) has waned. For the first time since 2014, the BJP failed to secure an outright majority in the lower house of Parliament, forcing it to rely on coalition partners. This shift presents significant challenges for the government, particularly in pushing through key legislation and maintaining political stability.

Reema Bhattacharya, head of Asia research at Verisk Maplecroft, highlighted the necessity of consensus-building in this new political landscape. “The government will have to find common ground and build consensus on multiple fronts, not just with alliance partners but also with other stakeholder groups, to push through key legislation in Parliament and quell the rising anti-incumbency sentiment nationwide,” she noted. Failure to do so could result in further political setbacks, particularly in upcoming state elections.

1. Infrastructure Push

India's infrastructure development has been a cornerstone of Modi's economic strategy, and this focus is expected to intensify in the coming years. Last year, consultancy firm EY projected that India would become a $26 trillion economy by 2047, underscoring the critical role of infrastructure in achieving this goal.

Samir Kapadia emphasized Modi's commitment to infrastructure, stating, “Since Modi’s been in office, he’s done his utmost to build ports, railways, and all kinds of hardline infrastructure to make business fluid. He’s going to double down on that.” However, Kapadia also acknowledged that India still trails behind China in this area and must accelerate its efforts to attract foreign investors and sustain high growth.

The interim budget for the fiscal year 2025 reflected this priority, with Finance Minister Nirmala Sitharaman estimating an 11.1% increase in capital expenditure, largely focused on constructing railways and airports. However, analysts like Santanu Sengupta, India economist at Goldman Sachs, argue that the government must also focus on unlocking land for more infrastructure projects to drive job growth in the sector. This could prove challenging given the coalition's weakened mandate.

2. Enhance Manufacturing

Over the past decade, Modi has aggressively promoted India as a self-reliant manufacturing hub, particularly in the semiconductor industry. The government's efforts are starting to bear fruit, with U.S. tech giants like Apple and Google increasing their supply chain presence in India. Foxconn, a major Apple supplier, has announced plans to ramp up investments, and Micron Technology is set to produce the first India-made semiconductor chip by early 2025.

Kapadia highlighted the potential of the semiconductor industry as a major economic driver. “This will probably be the biggest breadwinner for India over the next five to 10 years,” he said. He also emphasized Modi’s belief that success in semiconductor manufacturing could position India as an economy less vulnerable to global disruptions.

3. Fight High Unemployment

Unemployment remains one of India’s most pressing issues, exacerbated by a skills mismatch in the labor market. The unemployment rate rose to 8.1% in April, with many workers struggling to find jobs that match their qualifications. A survey conducted by the Centre for the Study of Developing Societies ahead of the election revealed that unemployment was the top concern for 27% of respondents, with more than half stating that finding a job had become more difficult during Modi’s second term.

Analysts stress the need for the new government to improve education standards and skills-based training to address this issue. Vivek Prasad, markets leader at PwC India, noted the importance of creating inclusive employment opportunities. “While those with advanced education and practical experience are poised to secure jobs in this sector, creating widespread, equitable employment opportunities requires a more inclusive approach,” Prasad said, adding that boosting the employment of women is crucial for driving India’s growth.

4. Increase Foreign Investments

Foreign investment is vital to sustaining India’s economic growth, and analysts remain optimistic about the country’s prospects. The National Stock Exchange of India, with a market capitalization of $4.9 trillion, is the third-largest in Asia-Pacific. However, foreign direct investment (FDI) into India has slowed, partly due to a challenging private equity funding environment driven by high U.S. interest rates.

Analysts like Goldman Sachs’ Sengupta expect FDI inflows to increase once U.S. interest rates soften, improving the funding environment. Prabhat Ojha, partner and head of Asia client business at Cambridge Associates, emphasized the importance of India’s banking sector in attracting foreign investments, noting that Indian banks are in a healthier state today after a significant cleanup from 2017 to 2019.

Conclusion: A Balancing Act Ahead

As Prime Minister Narendra Modi embarks on his third term, his government faces the dual challenge of maintaining economic growth while navigating a more complex political landscape. Samir Kapadia’s insights highlight the importance of continuing infrastructure development, enhancing manufacturing, addressing unemployment, and attracting foreign investments. The success of these initiatives will determine whether India can realize Modi’s vision of becoming a developed economy by 2047.

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