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India's ongoing parliamentary election for all 543 seats in the Lok Sabha, the lower parliamentary house, is the longest by length of voting period and the largest by size of the eligible electorate of 980 million people in the history of independent India.

Counting for India's parliamentary election is scheduled for June 4. The election has been ongoing since April 19, with Prime Minister Narendra Modi running for a third term in office, for the Bharatiya Janata Party (BJP) alongside 35 other parties in the National Democratic Alliance (NDA). The primary contender against Modi's Bharatiya Janata Party (BJP) is the Indian National Congress (INC) in coalition with the 27-party Indian National Developmental Inclusive Alliance (INDIA).

Regardless of the election outcome, policy focus will remain on sectors considered strategic by the major domestic political parties, including renewable energy, automotive, electronics, textiles, digital infrastructure, logistics, food production and services. These sectors drive Indian macroeconomic stability and growth, are of relevance to climate policy and energy transition, and support domestic employment. The parties also widely consider further development of these sectors to be beneficial for India's foreign policy objectives.

Post-election, India's economic momentum will remain strong, supported by government capital spending and the recovery in private consumption and investment. While concerns over food prices will remain, the inflation outlook has broadly improved since early 2024. Consumer price inflation is projected to moderate to 5.3% in 2024 from 5.7% in 2023. Post-election policies targeting inflation will be influenced by the outlook for the monsoon (June-September), and in response to potential volatility in crude oil prices, given that India imports over 80% of its oil needs.

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Scenario 1: Modi secures a third term, with the NDA securing a two-thirds parliamentary majority:

• The Modi government's post-election policy program will reflect its stated ambition of "Viksit Bharat 2047" ("Developed India 2047"). Policies will focus on encouraging macroeconomic growth to keep India on track to become the third-largest contributor to global GDP by 2030. Fiscal prudence would continue with the stated goal of lowering the central government's fiscal deficit to 4.5% of GDP by fiscal year 2025-26 from 5.8% of GDP in fiscal year 2023-24.
• Expanding the use of technology in government services, and across the private sector, is also very likely. Proposed legislation to regulate the use of personal data and domestic digital infrastructure, and on the use of artificial intelligence (AI) systems, will therefore increase in both Modi-government scenarios.
• The next administration will seek to consolidate foreign investments primarily via the central government. While sectoral foreign direct investment (FDI) limits are unlikely to be raised, project-specific ad hoc exemptions will become more likely, with the government encouraging the role of "national champion" firms in strategic sectors. Government efforts to accelerate private investment will continue, as indicated by past government policy shifts that sought to make increased private-sector capital formation a driver for overall fiscal improvement, as indicated by the interim fiscal year 2024 budget presented in February.
• The government will also encourage exports of services as an attempted approach to facilitate employment and to capitalize on ongoing domestic expansion of financial services such as insurance. The Purchasing Managers' Index (PMI) survey's forward-looking questionnaire on future output showed strong business confidence among service providers in India in the first quarter of 2024.

Scenario 2: Modi secures a third term, with the NDA falling short of a special parliamentary majority:

• The Modi government's overarching ambition in Scenario 2 will be to boost India's macroeconomic growth prospects and maintain fiscal prudence. However, a weaker parliamentary mandate would imply more focus on central government-led social welfare provisions. The scale of technology expansion in government services is accordingly likely to be higher, with legislation to regulate the use of personal data and domestic digital infrastructure, and on the use of AI systems.
• The government will seek to encourage foreign investment by attempting to ease bureaucratic requirements, providing project-specific tax breaks and to channel these via Production Linked Incentive Schemes (PLIS). However, rather than the central government passing directives, there is likely to be a greater need for cooperation with state governments. Competition among Indian states for marquee investment projects will increase, as is already occurring, with the Modi government likely exercising its central authority to guide the allocation of investment.

Foreign Policy outlook under Scenarios 1 and 2:

• Under a potential third-term Modi government, the foreign policy agenda will prioritize efforts to strengthen India's leadership of emerging economies. The government is likely to focus on diversifying India's trade base to improve its external competitiveness and export growth. A new government will expedite trade agreements with emerging and advanced markets, also seeking the inclusion of services and promoting transnational use of India's digital infrastructure. Target markets are very likely to include India's "neighborhood" countries, Middle East Gulf countries, and Asia-Pacific countries such as Australia, Japan, the Philippines and Vietnam. Expanding India's trade opportunities will include efforts to prioritize trade corridors across the east and west, like the India Middle East Europe Corridor. Security cooperation in these areas that directly affect Indian interest is likely to increase as well.

Scenario 3: No party is able to secure majority seats by itself, needing to rely on coalition partners:

• A substantial cabinet reshuffle is almost certain in this scenario, with portfolio allocation being distributed across coalition parties and with policymaking becoming decentralized.
• In addition to prolonged negotiations for government formation, the 100-day program under a minority government is very likely to focus on establishing a common minimum platform for priority policies, given the differing priorities of coalition members.
• The role of state governments — irrespective of which party forms the state or central governments — is very likely to increase, with state governments very likely seeking direct negotiations with domestic and foreign investors for local projects.

Please note that the above scenarios are not assessed by likelihood of occurrence.

This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.