Modi’s BJP-led alliance set for narrower-than-expected win

Indian Prime Minister Narendra Modi will likely have to seek power-sharing agreements to clinch a historic third term in power, with his Bharatiya Janata Party set to fall short of an outright majority in the country’s lower house of parliament.

By Tuesday afternoon, ongoing vote counts suggested that Modi’s BJP is likely to win just 239 seats, according to the Election Commission of India. India’s Parliament has 543 seats, and the party or coalition that wins at least 272 forms the government.  

The surprise shortfall raises questions over his popularity — and risks stifling any immediate policies that the BJP was hoping to implement. Instead, Modi will have to look to smaller allies in the wider BJP-led National Democratic Alliance (NDA), which is set to get a combined 294 parliamentary seats, according to local media.

Meanwhile, the opposition Indian National Developmental Inclusive Alliance (INDIA), led by the Indian National Congress, is expected to win 231 seats — a much better result than previously predicted.

If the numbers hold, the BJP alone would lose 64 seats compared with its 2019 General Election tally of 303. The wider BJP-led alliance won 353 seats in 2019. Modi reportedly said in March that he was confident that the NDA would secure over 400 seats.

“As much as Prime Minister Modi remains a popular figure, the shine has worn off as the everyday lived realities of unemployment, inflation and governance are dominating voters’ minds,” Yamini Aiyar, former president of the New Delhi-based Centre for Policy Research, told CNBC’s “Street Signs Asia.”

According to an April survey conducted by the Centre for the Study of Developing Societies, unemployment was the top concern for 27% of 10,000 people surveyed. More than half (62%) of respondents said it had become more difficult to find a job in the last five years during Modi’s second term.

The unemployment rate in the world’s most populous country rose to 8.1% in April compared to 7.4% in March, according to the Centre for Monitoring Indian Economy.

India’s benchmark indexes the Nifty 50 and BSE Sensex on Tuesday plunged 8% as it became clear the BJP could fall short of a majority.

“There were high expectations based on the exit polls yesterday, but numbers seem to be below projections. The opposition has gained strength and the whole narrative has changed,” said Kranthi Bathini, equity strategist of WealthMills Securities.

Market heavyweights Adani Ports and Adani Enterprises both plunged by more than 20% during Tuesday’s session, while State Bank of India and ICICI Bank fell 17% and almost 9%, respectively.

On Monday, both the Nifty and Sensex hit record highs and logged their best intraday gains since Feb. 1, 2021, gaining 3.25% and 3.39%, respectively, after exit polls over the weekend predicted a thumping majority for Modi’s BJP.

The Indian rupee weakened 0.5% against the dollar on Tuesday after strengthening 0.41% on Monday.

Under Modi, India, home to 1.4 billion people, has witnessed robust economic growth. The fastest-growing economy in the world saw its GDP expand by 8.2% in fiscal year 2024.

The International Monetary Fund projects that India’s economy will grow 6.8% in 2024 and 6.5% in 2025, compared with China’s growth outlook of 4.6% in 2024 and 4.1% in 2025.

“PM Modi will have to flex his muscles against adversaries like China. That will involve signaling support for indigenous defense manufacturing capabilities,” Kapadia highlighted.

In the BJP’s manifesto for the upcoming term, Modi said the government would make India one of the world’s top three economies, aggressively fight poverty, open up new avenues for growth and fight corruption. 

“We have gone from a nation that was in the ‘Fragile Five’ to a nation that is one of the top five economies of the world,” he said in the manifesto. 

While India has seen robust economic growth under Modi, observers and critics have warned about the country’s “democratic decline.” 

“The ruling anti-pluralist, Hindu-nationalist Bharatiya Janata Party (BJP) with Prime Minister Modi at the helm has, for example, used laws on sedition, defamation, and counterterrorism to silence critics,” Sweden-based V-Dem Institute said in a 2024 report. 

Others, however, have pointed to the giant electoral exercise in the country as a testimony to its strong democratic fundamentals.

“The election also shines a light on India as a rising star that’s built on democracy, and I’m glad that it is bringing a lot of attention to all the dynamic growth that we’re seeing in the country right now,” said Malcom Dorson, senior portfolio manager and head of emerging markets strategy at Global X ETFs.

— CNBC’s Sumathi Bala contributed to this story.