New Delhi: An emotional Narendra Modi moved a step closer to becoming India’s 14th prime minister after President Pranab Mukherjee on Tuesday accepted his formal claim to form the next government and invited him for swearing-in on 26 May.
The Modi-led Bharatiya Janata Party’s (BJP) victory in the general elections was widely anticipated, although the magnitude wasn’t, and investor and business confidence had run-up ahead of counting day, Friday, 16 May.
BSE’s benchmark Sensex gained 3.79% between Monday’s opening and Thursday’s close last week, and a business confidence index, released on Tuesday but conducted in April, showed significant improvement in business confidence. After the results, global rating agencies were quick to point out that a stable government would improve the business environment.
On Tuesday, Modi’s meeting with the president took place after a meeting of the Bharatiya Janata Party (BJP), which formally named the former Gujarat chief minister as prime minister designate; this was subsequently endorsed by the BJP-led National Democratic Alliance (NDA). The BJP has 282 members in the 16th Lok Sabha, which gives it a simple majority in the 545-member house. The NDA has 336.
Attention now has shifted to the government formation and initiatives to heal the economy, which has only recently bottomed out after witnessing a sharp deceleration in growth in the last two years. The expectation is that Modi will be sworn in with a small cabinet that will include Arun Jaitley, Rajnath Singh and Nitin Gadkari. The buzz is that Jaitley will be the country’s next finance minister.
The overwhelming mandate managed by the BJP and the smooth transition from the Congress-led United Progressive Alliance (UPA) has reduced the political uncertainty among nervous foreign investors and improved sentiments in the economy. It has also stoked expectations of a fresh wave of reforms and policy measures including those that will unlock big ticket infrastructure projects.
Rating agencies have already begun re-rating India’s prospects.
“Clearing the bottlenecks of infrastructure projects is likely to be an early priority. However, sustaining the investment cycle over the long run will require a broader improvement in the business environment. Structural reforms related to governance, and the reduction of red tape, are essential to re-accelerating economic activity,” Fitch Ratings Inc. said in a statement on Tuesday.
Similarly on Monday, rating agency Moody’s said the landslide victory of the NDA in the 16th general election is “credit-positive” for India. “Moody’s believes that the new government’s strong mandate increases the possibility of a stable central government that will pursue a shared economic agenda to address India’s macroeconomic challenges,” the agency said in a report titled India’s decisive election outcome is credit positive.
On Friday, immediately after poll results were announced, another rating agency Standard and Poor’s (S&P) said in a note: “What the next government says and does in the coming months is crucial to boosting confidence in the policy settings and the economy.” Authored by credit analyst Takahira Ogawa, the note added: “If confidence rises, investment and consumption in India could strengthen, after being held back by the uncertainty surrounding the election.”
Currently, all three rating agencies have assigned the lowest investment grade to India. Except Moody’s, which has a positive outlook, both Fitch Ratings and S&P have assigned negative credit outlook for India.
On Tuesday, the National Council of Applied Economic Research (NCAER) reported a pick up in its business confidence index; the survey was conducted in April 2014. “Out of the four components of BCI only investment climate indicator declined in April whereas the other three indicators reflecting expectations of overall economic growth, financial position of the firms and capacity utilization improved,” an NCAER release said.
Modi makes BJP weep
Earlier in the day, the prime minister-designate Modi broke down, fighting back tears in the middle of a nationally-televised address to members of the BJP parliamentary party, moments after they had elected him the party’s leader in the Lok Sabha—paving the way for Monday’s swearing-in.
The 63-year-old Modi, making his first visit to the Parliament since leading his party to a thumping victory in general elections, bowed before and kissed the steps of the building as he entered it for the meeting of the BJP parliamentary party and its partners in the NDA.
Several leaders of BJP were seen moved to tears.
Modi dedicated his government to the poor, implicitly suggesting that the ideology of inclusion pioneered by the outgoing UPA would not be shelved in a hurry.
“The government should be for the poor, it should listen to the poor and it should work for the poor. Our dream should be to fulfil the dreams of people, including poor, youth, women, dalits and farmers,” he said.
The four-time Gujarat chief minister said the government must ensure it takes everyone together and development must reach the entire population of the country.
Modi spoke for 30 minutes after he was unanimously elected the leader. His name was proposed by senior party leader Lal Krishna Advani and seconded, among others, by Murali Manohar Joshi, Sushma Swaraj, Venkaiah Naidu, Arun Jaitley and Nitin Gadkari.
“It is the strength of the Indian democracy that a person of poor background is standing here,” Modi said.
Soon after the parliamentary party meeting for the BJP ended, leaders of all 29 alliance partners of the NDA too met at the Central Hall of the Parliament and chose Modi leader of the NDA.
Those present included Parkash Singh Badal of Shiromani Akali Dal, Uddhav Thackeray of Shiv Sena, and Telugu Desam Party chief N. Chandrababu Naidu. Chief ministers of BJP-ruled states—Vasundhara Raje of Rajasthan, Raman Singh of Chhattishgarh, Shivraj Singh Chouhan of Madhya Pradesh and Manohar Parrikar of Goa were also present.
PTI, AFP and Bloomberg contributed to this story.