India’s election: implications for global investors

The recent Indian election, in keeping with global election trends, proved the pollsters wrong yet again. With a coalition government in power after 10 years, does anything change? What do international investors need to know?

India, the world’s largest democracy, completed a mammoth six-week election process with more than 950 million eligible voters voting in phases in different parts of the country. The election results, in keeping with global election trends, proved the pollsters wrong yet again. 

The polls had predicted a “super majority” for Prime Minister Modi’s Bharatiya Janata Party (BJP). However, the BJP did not reach the magic number of 272 seats and now – for the first time since the landslide wins of 2014 and 2019 – they do not have an outright majority and have had to rely on coalition partners to form the national government. With a coalition government in power after 10 years, what do international investors need to know?

What does the Indian election result mean for international investors? 

What is the impact of a coalition government on international investors? How will the dynamics of coalition politics be navigated? What does this mean for India’s aspirations as an economic powerhouse of the future? 

The Indian Government’s message so far seems to be resoundingly ‘business as usual’ with continued economic growth being a foundational element of the Indian Government’s plans. The newly appointed Cabinet ministers of all the major offices of state (such as the Finance Minister, Home Minister, Defence Minister and Commerce Minister) have remained the same as in the earlier Cabinet, further reinforcing the message of stability and continuity.  More details will be available in the first budget which is due to be announced in July 2024. 

India continues to represent enormous opportunities for international investors. GDP growth is expected at least 6 per cent over the next five years and it has a growing population, aspirational middle class with rising incomes and a young demographic. Prime Minister Modi says the next decade could be “India’s moment.” 

What are the new Government’s likely key objectives? 

The mantra is likely to be growth, growth and growth. The Indian economy is expected to grow at a robust 6.5 per cent this financial year and the Indian Government will be keen to continue that trajectory. That growth, it is hoped, will help lift parts of the Indian population out of poverty. 

Earlier this year, the Indian Government published a review of the Indian economy which expected India to become the third-largest economy in the world by 2027 with a GDP of $5trn and with GDP expected to grow to $7trn by 2030. International investment will need to play a pivotal role if this goal is to be realised. 

The drive to promote India as one of the “factories of the world’ will continue. In order to achieve that, the Indian Government will need to ensure an appropriate ecosystem is established to facilitate global manufacturing requirements and make India truly competitive on a global scale to fully achieve its potential as a global manufacturing hub. The Indian Government will need to continue to make it easier to do business and maintain a stable, investor-friendly business environment. 

Increased manufacturing has the benefit of creating jobs. Job creation – in particular for the large and expanding young population – will need to be an important focus of the Indian Government as it looks ahead. Once again, foreign investment will be a critical component in the drive to create more jobs. 

What are India’s likely top three sectors for the next year? 

Manufacturing 

India continues to be a beneficiary of global geo-political fragmentation and the ‘China Plus One’ (C+1) strategy adopted by many global corporations creating supply chain opportunities. The Indian Government will be keen to continue to capitalise on that in its efforts to make India a global manufacturing hub.

The Indian Government had introduced a number of Production Linked Incentive (PLI) schemes which give companies certain incentives and benefits (such as reduced customs duties) if they manufacture in India and these schemes are expected to continue. 

Automobiles (and specifically, electric vehicles and EV charging) and auto components are expected to remain key areas of focus. With continued global supply chain dislocations, there are real opportunities for US and European auto manufacturers and OEMs to gain an early mover’s advantage which, may be in the form of majority or minority acquisitions, or collaborations and joint ventures. 

Infrastructure 

The Government’s continued push on logistics infrastructure is expected to continue, especially transport infrastructure such as ports, roads, railways and airports. There has already been investment from private capital in these sectors, particularly from sovereign wealth funds and we expect the Indian Government will continue to welcome such investment. 

The focus on digitisation and digital infrastructure is expected to remain strong, reflecting the increasing demand for online connectivity and smartphone adoption. The Indian Government is expected to continue to seek to build a technology-driven economy. 

Green energy 

As India looks to a path to achieving its net-zero climate targets, green energy is expected to be a target area for investment. Green hydrogen in particular has been identified as being key to help meet India’s energy security needs while, at the same time, seeking to reduce emissions in the more challenging sectors such as steel, fertilisers, oil and gas refineries, and cement. 

In early 2023, the Indian Government launched the ‘National Green Hydrogen Mission’ which, the Indian Government hopes, will lead to “significant decarbonisation of the economy, reduced dependence on fossil fuel imports, and enable India to assume technology and market leadership in Green Hydrogen”. 

Digitisation has already helped reshape India’s power and energy sector, where it has increased business efficiency and enhanced customer experiences: this is expected to continue. 

The interplay between green energy and digital technologies in particular represents exciting opportunities for India and could be truly transformative going forward. For example, the use of AI in analysing and optimising energy consumption pattern, forecasting renewable energy generation, maximising energy production and minimising costs could be a game-changer in India’s green energy efforts. 

This material is for general information purposes only and is not intended to constitute legal or other advice. Regulation prohibits foreign law firms from practising Indian law. The contents of this publication do not constitute any opinion or determination of Indian law by us. Any comments in this publication are based on our experience as international counsel representing our clients in their deals and disputes which may have a connection with India. Freshfields does not practise Indian law and, where Indian law advice is needed, we work alongside leading Indian counsel.

To find out how elections around the world are affecting international investments, please see our 2024 election supercycle insights.