India's Modi facing urgent economic challenges after win

Dissatisfaction with India's lagging economy didn't deter voters from handing Prime Minister Narendra Modi and his Hindu nationalist party a landslide parliamentary election victory.

Now, they'll be expecting something in return: faster, bolder action on long-promised reforms to transform the economy and improve the lives of India's 1.3 billion people.

Modi made big promises during the campaign for the weeks-long vote, viewed by many as a referendum on his first five-year term, which began in 2014. His election manifesto included a pledge to double farmers' incomes and provide lavish aid to rural areas. He also vowed to make India the world's third-largest economy by 2030 and to spend more than $1.4 trillion — quadruple the country's annual budget — on improved infrastructure.

Such promises rang hollow for many unhappy with the country's 6.1% unemployment rate, the highest in decades; slow progress on modernizing railways and other infrastructure; streamlining India's byzantine bureaucracy and other initiatives that helped him win office in the first place.

But voters gave him the benefit of the doubt, and the economy may well get at least a short-term boost from the incumbent alliance's strong showing in the election. The benchmark Sensex index surged briefly to a record high, over 40,000.

That infusion of confidence could help drive increases in foreign and domestic investment, Priyanka Kishore of Oxford Economics said in a post-election analysis.

However, she said, "From a longer-term perspective, the focus is likely to shift back to Modi's economic and reform agenda, once the euphoria gives way to more pragmatic assessments of India's economic situation."

While campaigning, Modi and his Bharatiya Janata Party countered opposition criticism over suicides among farmers hit hard by low crop prices by focusing on wooing members of the Hindu majority with a nationalist pitch and playing up his strong stance toward India's nuclear-armed archrival, neighboring Pakistan.

That strategy appears to have succeeded.

"My sense is that the BJP was effective in keeping macro issues about the economy, such as unemployment or growth rates, outside the narrative of this election campaign. It was partly able to do so by leaning on emotive issues such as national security and Hindu nationalism," said Nikhil Menon, an assistant professor of history at the University of Notre Dame.

In the meantime, Modi's party could point to highly visible initiatives such as his Clean India program, a massive effort to build toilets in towns and villages to help stop open-air defecation.

Ajay Batt, a businessman in Delhi, said he was convinced.

"This slow-down can be a temporary thing, but people think about the country's security. Country is first. I am sure he (Modi) will improve the economy in the next five years," said Batt, who said he voted for Modi.

Now that the curtain has fallen on the election theatrics, Modi faces the hard work of revving up an economy at a time when wary consumers are spending less on everything, from toothbrushes to automobiles.

The Department of Economic Affairs reported that the economy slowed in 2018-2019, from 8% in mid-2018 to under 7% in the most recent quarter, hobbled by that slowing consumer demand, weak growth in investment and drooping exports.

Modi's decision to pull 86% of cash out of circulation in a demonetization he said was aimed at rooting out corruption had a severe, though short-term adverse impact on the economy, as hundreds of millions of people suddenly discovered they had no funds for even the simplest transactions.

Hiccups in the implementation of India's new Goods and Services Tax, or GST, haven't helped, said Devashish Mitra, an economics professor at Syracuse University.

While the tough talk on security did help shore up support for Modi's party, the incumbent's advantage also stemmed from public skepticism toward the opposition Congress Party, given its mediocre record on reforms and legacy of corruption and incompetence, he said.

The "Modi government should get a lot of credit for its Insolvency and Bankruptcy Code as well as the cleansing of the banking system, an important component being getting rid of non-performing assets," Mitra said. But he noted that job creation was slow compared with the growth in the workforce, labor reforms have made halting progress and difficulties in acquiring land have hindered growth in manufacturing and construction of infrastructure.

Looking ahead, breakthroughs on Modi's original, ambitious reform agenda are unlikely, says Kishore of Oxford Economics. Instead, his government will likely focus on measures that could help energize the economy and satisfy campaign promises, such as crop price subsidies and income and credit support for farmers and small businesses.

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AP Business Writer Elaine Kurtenbach in Bangkok contributed.