Modi Reigns Supreme. Now India's Economy Awaits

If Narendra Modi's 2014 popular mandate was India's biggest in three decades, his 2019 re-election is an even bigger feat.

Votes are still being counted, but on current trends the prime minister's Bharatiya Janata Party will win a more impressive single-party majority in parliament than last time around.

It's a remarkable demonstration of voters' faith in PM Modi's carefully crafted strongman image. What he has pulled off in the world's biggest democracy could give some pointers even to US President Donald Trump. That the BJP leader has cruised to victory amid agrarian distress, youth unemployment, high income inequality, anemic growth, a broken financial system and the promise of a basic income for 5 crore of the country's poorest families by the opposition Congress Party, makes the win all the more momentous.

In a UK-style parliamentary democracy, people voted for PM Modi as though he was their de facto president. He may well govern like one. The members of parliament that actually got elected won't count for much anyway, given how heavily their campaign leaned on PM Modi's charisma. As for the party and its ideology, the BJP's identification with PM Modi is now complete. He has a clear five-year runaway to shape the national agenda, and his ministers will have to back him to the hilt.

Analysts will have many questions after this week's euphoria in stock markets has calmed down. For one thing, the composition of the new economics team, a particularly weak point of the PM Modi administration's first five years, will be keenly awaited. Institutions such as the central bank and the statistics department, which have seen their independence and credibility come under attack, will also be watched - for signs of repair or further degradation.

Investors will want to know if PM Modi still has an appetite for arbitrary action, such as his overnight ban on 86 per cent of the country's cash. The state of the economy offers zero scope for more ill-conceived experimentation. Consumption is slowing because of poor wage growth in villages and unfavourable prices of food commodities. Private investment is expected only in select areas like road construction, and not in things like power and telecom. Shadow lenders are retreating, amplifying a funding crunch for India Inc.

Now that the elections are out of the way, the government's own budget deficits will need more honest accounting. Big-ticket privatization, a missed opportunity of PM Modi's first term, will need a determined push. Decimation of a credible opposition in parliament opens up the possibility of muscular action minus the usual constraints of a noisy democracy. The next five years will determine to what extent PM Modi uses the policy space, and what he makes of it.

(Andy Mukherjee is a Bloomberg Opinion columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.)

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