Modi's Majority Slips: Challenges for BJP's Reform Ambitions

The BJP lost its outright majority for the first time since 2014, affecting its capacity to implement ambitious reforms. Despite forming a government with coalition partners, passing significant reforms, particularly in land and labor, may be challenging. Fitch Ratings predicts policy continuity but with modest growth prospects.

The Narendra Modi-led BJP has lost its outright majority in the Lok Sabha, compelling the party to rely on coalition partners to form a government. This marks the first time since 2014 that the BJP has faced such a scenario, garnering 240 out of the 543 seats. Along with the smaller parties in its National Democratic Alliance (NDA), which secured 52 additional seats, the coalition holds a 292-seat majority in the lower house.

According to Fitch Ratings, this weakened majority could pose significant hurdles for implementing the more ambitious parts of the BJP's reform agenda, especially those related to land and labor. These reforms are considered vital for enhancing India's manufacturing competitiveness.

However, Fitch expects policy continuity to persist despite the slimmer majority. It predicts the government will continue its capital expenditure push, measures to ease business operations, and gradual fiscal consolidation. While the medium-term growth outlook remains robust, the agency cautions that the trajectory of growth could be more modest if the reform agenda faces significant obstacles.