What lies ahead for the new Indian government

Supporters of the ruling Bharatiya Janta Party (BJP) holding cut-outs of India’s Prime Minister and their leader, Narendra Modi shout slogans during an election campaign rally of their president and election candidate Jagat Prakash Nadda (not pictured), in Amritsar on May 30, 2024 ahead of the seventh and final phase of voting in India’s general election. (AFP)

• Economic disparity, inflation, taxes and unemployment likely to be key challenges 
• Foreign relations with China, Pakistan, Canada will continue to plague any new administration

NEW DELHI: India is expected to have a new government in place by the middle of June after a six-week election that began on April 19. Votes will be counted on June 4 and analysts expect Prime Minister Narendra Modi to win a third straight term.
Here are some key issues the winning party, or coalition, will need to tackle in office.
ECONOMIC DISPARITY
India’s economy is expected to have grown by about 8 percent in the last fiscal year, one of the fastest rates among major economies, but voters have pointed to disparities on the ground, with growth more visible in cities than in the vast hinterland.
The economy has jumped five places to be the fifth-largest in the world in the past decade under Modi and he has said he will lift it to the third position if elected. But the country’s per-capita income still remains the lowest among G20 nations.
Nevertheless, S&P Global Ratings in late May raised India’s sovereign rating outlook to ‘positive’ from ‘stable’ while retaining the rating at ‘BBB-’, saying the country’s robust economic expansion was having a constructive impact on its credit metrics.
INFLATION ABOVE CENBANK TARGET
Annual retail inflation (INCPIY=ECI) in April stood at 4.83 percent, slightly lower than March, but still above the central bank’s 4 percent target.
Food inflation, which accounts for nearly half of the overall consumer price basket, was an annual 8.70 percent in April, compared with a 8.52 percent rise in the previous month. Food inflation has been at more than 8 percent year-on-year since November 2023.
Countering the steep increase in food prices has been one of the key campaign planks of the main opposition Congress party, which has promised several cash handouts to alleviate the situation.
Modi has meanwhile banned exports of wheat, rice and onions to contain domestic inflation.
UNEMPLOYMENT
Unemployment in India has also been one of the main issues in the campaign with Congress accusing the Modi government of doing little to provide jobs for the country’s youth.
The unemployment rate in India rose to 8.1 percent in April from 7.4 percent in March, according to the private think-tank Center for Monitoring Indian Economy.
Government estimates for the latest January-March quarter show that the urban unemployment rate in the 15-29 age group ticked higher to 17 percent from 16.5 percent in the prior quarter.
Overall, urban unemployment rate in the January-March quarter stood at 6.7 percent, compared to 6.5 percent in the previous quarter, according to government data.
The Indian government does not release quarterly unemployment figures for rural India.
FOREIGN RELATIONS
India’s rising world stature and assertive foreign policy have been touted as major recent achievements by Modi’s administration.
A key diplomatic strain, however, remains with China which was spurred by a 2020 border clash that left 20 Indian and four Chinese soldiers dead. Modi said last month the countries should address the “prolonged situation” on their border.
Modi’s government has been trying to attract foreign companies to diversify supply chains beyond China.
Relations with Canada have also been strained in recent months after Ottawa and Washington accused an Indian official of directing the plot in the attempted murder of Gurpatwant Singh Pannun, a Sikh separatist and dual citizen of the United States and Canada.
In May, Canadian police arrested and charged three Indian men with the murder of Sikh separatist leader Hardeep Singh Nijjar last year and said they were probing whether the men had ties to the Indian government.
TAXES
An industry lobby group earlier this year called for a tax exemption limit for individuals to be increased and linked with inflation to help boost consumption.
The Confederation of Indian Industry also asked that the government review its capital gains tax structure by bringing consistency in tax rates for different asset classes such as debt, equity and immovable assets.
FARMERS
Stagnant farm income is a major sign of widening inequality between urban and rural India that has led to widespread protests. The BJP had promised to double farm income by 2022 in its manifesto for the last election, but has failed to do so.
Despite that, Modi has set a new goal to lift rural per-capita income by 50 percent by 2030 but farmers in the hinterland remain skeptical of such plans, Reuters reported earlier.
LAND, LABOUR REFORMS
In February, a BJP spokesperson told Reuters that Modi could make labor reforms a priority if he wins the general election.
New labor codes, which would make it easier for firms to hire and fire workers and impose operating restrictions on unions, were approved by parliament in 2020, but they have yet to be implemented following resistance from workers and states.
The new government may also continue to delay taking on land reforms as any such moves would be contentious and lead to losses in state elections later this year.
In his first term as prime minister, Modi tried to push through legislation that would have made it easier to buy land for industrial corridors, rural housing and electrification, and for defense purposes. However, the plan was put on the backburner amid stiff resistance from the opposition.