642 million votes counted … now India can get back to business

Reuters/Adnan Abidi

• Narendra Modi set for third term as PM
• GDP forecast to rise 6.8% this year
• Relations with Gulf closer than ever

Narendra Modi has claimed victory in India’s election – and many in the Gulf will be delighted at the prospect of a third Modi term. The prime minister’s pro-business credentials and economically liberalising tendencies remain credible, if battered, after 10 years in office. 

His Bharatiya Janata Party did not perform as well as expected, however, and will have to rely on its National Democratic Alliance partners to form a parliamentary majority. The Congress Party-led opposition bloc, buoyed by its results, has yet to concede.

If Modi can govern effectively with his NDA partners, India is expected to be a major beneficiary as investors look to diversify manufacturing and supply chains away from China. The IMF is forecasting that the Indian economy will grow at 6.8 percent this year and 6.5 percent in 2025.  

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Relations between India and the Gulf are close and becoming closer. Last year Indian families were reported to be coming to the UAE in “unprecedented numbers”. They may have been attracted by an easing of rules to obtain a golden visa. Modi himself has made seven visits to the UAE since he took office, including one at the start of this year’s election campaign. 

New Delhi and the six GCC states share a commitment to geopolitical neutrality. On trade, energy supplies go east and a skilled, but relatively cheap, workforce comes west. The UAE has a comprehensive economic partnership agreement with India. Refineries in Dubai go some way to feeding Indian consumers’ famous voracity for gold and silver. 

Last year DP World, Dubai’s flagship port operator, signed a deal to operate a sixth container terminal in India to add to the two it runs in Mumbai and one each in Mundra, Kochi and Chennai.

Reuters/Priyanshu Singh

From Saudi Arabia, Crown Prince Mohammed bin Salman made a rare trip overseas when he visited New Delhi (as well as China and Pakistan) last September. India is said to be courting Saudi Aramco to build a strategic oil reserve.  

Modi has promised a series of measures in the first 100 days of his third term. A National Financial Information Registry Bill, which seeks to provide a “360-degree information system”, will be made available to lending institutions. This may help a sclerotic banking system. The new government may also amend the Insolvency and Bankruptcy Code. 

During the campaign, Modi talked of turning India into a manufacturing powerhouse by giving subsidies to electric vehicles and semiconductors. 

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These promises look ambitious and speak to a long-running criticism of Indian economic management. While the IT and services sectors in India prosper – more or less – manufacturing is stunted.  

Many view the PM’s “Make In India” campaign and the use of tariffs to protect electric vehicles and semiconductors as code for a mindset that is still protectionist. Investment from India into Gulf countries has dropped despite growth in bilateral trade, as a result of this approach. 

Observers say Modi needs to champion awkward reforms for India to rival China. These include changes to labour laws to make it easier to hire and fire, and reforms to land acquisition rules to help industrialisation. 

Reuters/Amit Dave

Indian promoters say theirs is a highly devolved country where many economic decisions are taken at state level. The south is generally richer than the north and the coastal states more prosperous than the landlocked. 

Decisions on hiring and firing and on land appropriation are better made at the state level, they argue. 

Perhaps. The Gulf states have not been shielded from a difference between India’s potential and its reality. Ground has yet to be broken on a massive Saudi-UAE oil refinery at Raigad near Mumbai, five years after it was announced, because of opposition from local residents.  

For all its faults, China runs a determinedly export-oriented economy. Result: GDP per capita is $2,730 in India and $13,140 in China

A senior official at Mubadala, an Emirati sovereign wealth fund that has invested around $8 billion in India, said last week that New Delhi must do more to cut red tape. 

Sridhar Iyengar, a chief financial officer at the fund, said of one experience: “It was nothing to do with the government, nothing to do with the legal [or] tax [framework], but the approvals that one needs to get, which is the execution side, that took its own sweet time.” 

The UK’s Vodafone has been forced to write off the value of its joint venture with a Mumbai-based conglomerate to create a third mobile operator to challenge two incumbents. Etihad of Abu Dhabi lost a bucket on its venture with Jet Airways. 

Reuters/Sharafat Ali

There are also lingering questions around Adani Group, whose founder is a close Modi ally as well as a big investor in UAE real estate. 

Compare and contrast with China – which, for all its faults, runs a determinedly export-oriented economy. Result: GDP per capita is $2,730 in India and $13,140 in China. 

Gulf investors scent opportunity – and some are trying to attract Indian manufacturers. Earlier this week Zulfiquar Ghadiyali, managing director of Royal Arab Holdings, the business arm of the private office of Sheikh Tahnoon bin Zayed Al Nahyan, urged Indian businesses to set up factories in the UAE. 

He said: “Indian companies must understand that there will be a time when the UAE will expect you to not just bring your goods here, but come and manufacture them here.”