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‘Still a strong story.' Why India's election shock won't derail its economic boom

·2 mins

Narendra Modi has declared victory in India’s election but he’ll need the support of smaller parties to govern, a shock result that could make it harder for him to pass major economic reforms.

India boomed during Modi’s first two terms as prime minister, becoming the world’s fifth biggest economy and growing by 8.2% in the last fiscal year.

However, the new government will need to make more big changes to sustain that pace if India is to become an economic superpower and a manufacturing rival to China.

Experts say the fragmented government may make policy making more difficult, hindering the implementation of land reform and improvements in labor regulations.

India will need to address these issues to capitalize on the shift in supply chains as companies look to diversify away from China.

Despite the electoral setback, experts predict that India’s economy will continue to grow at a potential rate of 6% to 7% and double in size over the next decade.

The Bharatiya Janata Party fell short of winning an outright majority in parliament, causing a plunge in the stock market. However, analysts believe that the next government will still ensure India remains an attractive destination for investors and companies.

India’s economy is expected to become the world’s third largest before the end of this decade, thanks to its demographic dividend and favorable trade relations with Western nations.

Modi’s government has focused on infrastructure development and digital platforms, both of which contribute to economic expansion.

Investing in India is seen as a long-term opportunity, independent of the election outcome.