After Election Victory, Modi Needs to Deal with Indian Economy, Pakistan

23 May, 2019

Indian Prime Minister Narendra Modi's Hindu nationalist party declared victory Thursday in parliamentary elections. The Bharatiya Janata Party, BJP, says it won over 300 of the 542 seats in India's lower house of parliament.

If confirmed for a second term as prime minister, Modi will face a number of challenges in the weeks to come. The economy is slowing. There is a job shortage in the country. And relations with Pakistan, India's longtime enemy, are tense.

BJP's election victory was based, in part, on national security issues. The party appeared to gain strength after Modi sent warplanes into Pakistan to hit a suspected militant camp. That raid was meant to answer a bombing in Kashmir. The attack led to the deaths of 40 Indian police officers.

Investors seemed hopeful about Modi winning a second term as prime minister. They think the size of his party's victory will enable the government to push through reforms. Indian stock prices rose more than 5 percent this week, with some stocks hitting record highs.

But the wave of happiness did not last long. Stock prices and the value of the rupee, India's money, ended weaker as investors turned their attention to an economy that is slowing.

Modi will need to immediately push for economic growth, which fell to a yearly rate of 6.6% between October and December. That is the slowest growth for five quarters. There is also a money crisis in India's private finance industry.

Other economic measures are equally problematic: industrial production and manufacturing growth have weakened in recent months. Automobile sales, and other economic indicators fell in April.

"We are seeing very strong signs that the economy is under pressure," said Aishvarya Dadheech. He is with the financial company Ambit Asset Management.

"When things are so bad, you don't need an unstable government on top of it."

Supporters of Indian Prime Minister Narendra Modi use their mobile phones to take his picture as he addresses them after the election results at the Bharatiya Janata Party (BJP) headquarter in New Delhi, India, May 23, 2019.
Supporters of Indian Prime Minister Narendra Modi use their mobile phones to take his picture as he addresses them after the election results at the Bharatiya Janata Party (BJP) headquarter in New Delhi, India, May 23, 2019.

Tight finances

Even if Modi wants to increase federal spending to support growth, his hands are tied. Lower tax collections and populist measures meant to appeal to voters will stop his new administration from spending.

When Modi became prime minister, oil prices around the world were falling. That left India with some money to spend. But now oil prices are rising and will push the current account deficit higher. Finance Ministry officials told Reuters this month there was no possibility of economic stimulus money.

Concern has been growing about a liquidity problem in the private finance industry. India has more than 10,000 such businesses. They are worth about $304 billion.

Last year, the government took control of one large financial company after it was unable to make its debt payments on time. Another private financial company recently said it would not permit early withdrawals.

Rajesh Cheruvu is the chief investment officer at Mumbai-based WGC Wealth. He said the government had to "restore confidence."

Modi will also need to deal with growing concerns over the lack of jobs. Unemployment rose to 7.6% in April, up from 6.71% in March. Those numbers come from the Center for Monitoring Indian Economy.

While dealing with economic problems at home, Modi will also need to watch Pakistan. Tension remains high after the two countries came close to war following the militant attack three months ago.

Earlier this week, Pakistan expressed a willingness to open talks with India. Foreign Minister Shah Mehmud Qureshi said that "we want to live like good neighbors and settle our outstanding issues."

But on Thursday, just as Modi's victory appeared guaranteed, Pakistan appeared to speak louder. It tested a surface-to-surface ballistic missile – one that had the ability to carry nuclear weapons.

I'm Susan Shand.

The Reuters News Agency reported this story. Susan Shand adapted it for VOA Learning English. George Grow was the editor.

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Words in This Story

challenge – n. to test the ability, skill, or strength of (someone or something

quarter – n. a three-month period of the year

unstable – adj. not held in a secure position

stimulus – n. the act of putting money into the economy to help it

liquidity – adj. the state of having things that can be easily changed into money

confidence – n. a feeling or belief that you can do something well or succeed at something

ballistic missile – n. a weapon that is shot through the sky over a great distance and then falls to the ground and explodes