Modi Named to Lead Third-Term Government Amid Slim Majority

Indian Prime Minister Narendra Modi has been named to lead a new coalition government for a third term by the National Democratic Alliance. Despite a slimmer majority, the government aims to continue its reform agenda. Modi's BJP lost significant ground in rural areas, posing challenges for more ambitious reforms.

Indian Prime Minister Narendra Modi's National Democratic Alliance formally named him on Wednesday to lead a new coalition government for a third straight term, a day after it regained power with a surprisingly slim majority. Modi, a populist who has dominated Indian politics since 2014, will for the first time head a government dependent on the support of regional allies whose loyalties have wavered over time, which could complicate the new cabinet's reform agenda.

A day after the humbling election outcome for his Bharatiya Janata Party (BJP) became clear, Modi submitted his resignation to President Droupadi Murmu after the cabinet recommended the dissolution of parliament - the first of many formalities before Modi can form a new government. This was followed by a meeting of 15 parties in the National Democratic Alliance (NDA) at Modi's residence where he was formally named to lead the alliance.

Modi was set to meet Murmu again on Friday to present his claim to form a government and the swearing-in could take place over the weekend, an NDA leader told Reuters on condition of anonymity as he is not authorised to speak to the media. Local media earlier reported that the swearing-in ceremony was scheduled for Saturday.

The NDA won 293 seats in the 543-member lower house of parliament, more than the 272 needed to form a government. Modi's BJP won 240 seats on its own, a weakened verdict which could slow India's fiscal tightening, ratings agency Moody's said.

The weakened majority for Modi's alliance could pose challenges for the more ambitious elements of the government's reform agenda, ratings agency Fitch said. However, it added: "Despite the slimmer majority, we do expect broad policy continuity to persist, with the government retaining its focus on its capex push, ease of doing business measures, and gradual fiscal consolidation."

The closer-than-expected election should increase the prospect of productive reforms, the country's chief economic adviser said on Wednesday. RURAL SETBACKS

With the party losing most ground in rural areas, investors say land and labour reforms, that they had expected would unlock value and growth, will probably fall by the wayside. Newspapers said Modi's aura had dimmed, with the Indian Express's banner headline reading: "India gives NDA a third term, Modi a message."

In the latter stages of the campaign Modi had sought to renew his appeal to India's Hindu-majority, accusing the opposition of favouring minority Muslims. But without a majority of its own, some policies of his BJP, such as common personal laws for all religions that were opposed by some Muslims, will likely be put on the back burner, with Modi's regional allies seen as more accommodating towards minorities.

The BJP lost heavily in the two states that send the most lawmakers to parliament, its northern stronghold of Uttar Pradesh, which has 80 seats, and the western state of Maharashtra, which sends 48 members to the decision-making lower house. Modi's own victory in his seat of Varanasi, located in Uttar Pradesh and considered one of the holiest cities for Hindus, was subdued, with his margin of victory down from nearly 500,000 votes in 2019 to a little more than 150,000.

The result may not necessarily mean reform paralysis, the chairman of a government finance panel, Arvind Panagariya, wrote in an article in the Economic Times newspaper. "Despite the reduced majority in parliament, the necessary reforms are entirely feasible. Delivering sustained growth at a accelerated pace can only strengthen the government's hand in the coming years," he wrote.

The opposition INDIA alliance led by Rahul Gandhi's centrist Congress party won 230 seats, more than forecast. Congress alone won 99, almost double the 52 it won in 2019 - a surprise jump that is expected to boost Gandhi's standing. The INDIA alliance is also meeting on Wednesday in New Delhi to discuss a future course of action.