India’s six-week-long election, which started on April 19 and will run through June 1, is the world’s largest election, with nearly 970 million registered voters – more than 10% of the world’s population. The current Prime Minister, Narendra Modi, is seeking a third term, with predictions suggesting a victory for his Bharatiya Janata Party (BJP). The next government agenda will not only shape India’s future but also have significant implications on the global stage.
India operates under a parliamentary system of government, where the party or coalition with a majority of the 543 seats in the lower house of parliament can form a government. The main opposition party, the Indian National Congress, has struggled to match Prime Minister Modi’s appeal, making the election outcome less uncertain. Just days before the multi-phase general election began, Modi and other BJP leaders unveiled their election promises in the BJP manifesto 2024, setting the stage for the next government’s agenda.
What is at Stake for Businesses and Investors?
The execution of election promises is key to building confidence of businesses and investors.
A third term for a BJP-led government is expected to continue pushing the “Make in India” agenda, a flagship Indian government program. This initiative aspires to expand India’s economy by attracting foreign investors to set up manufacturing units in the country. It is expected to increase India’s economy to $5 trillion by 2027 from around $3.7 trillion today. Modi is seeking new trade deals and more Free Trade Agreements (FTA) to attract investment and create jobs. These endeavors are priorities that play well politically, as unemployment has been an enduring challenge during his administration.
We have witnessed significant trade partnerships between India and the United States in the last decade. US Secretary of State Blinken, addressing the US-India Business Council India Ideas Summit 2023, said, “The trade between our nations reached a record $191 billion, making the United States the largest trading partner for India. American companies have now invested at least $54 billion in India. In the United States, Indian companies have invested over $40 billion and are supporting 425,000 jobs.”
India is an attractive alternative option for investment. Samir Kapadia, CEO of India Index and managing principal at Vogel Group, in a exclusive interview with CNBC said, “Companies are seeing India as a long-term investment strategy as opposed to a short-term pivot to avoid tariffs.”
Manufacturing-led growth is another important element in India’s economy, producing scale-based jobs. Ashok Malik, Partner of The Asia Group, speaking to Ashley J. Tellis and Alyssa Ayres at The Carnegie Endowment for International Peace said, “India’s economy today consists of 15% of manufacturing, and the government wants to move the economy to a roughly $10 trillion size by the second half of the 2030s, 25% of which is manufacturing.”
Modi’s immediate priority after forming a government would be to increase domestic manufacturing. “After the government comes back, I expect there to be a strong focus on getting investments, especially in manufacturing, electric vehicles (EVs), and renewables,” said Bidisha Ganguly, Chief Economist at the Confederation of Indian Industry, in a report published by FDI Intelligence.
Another Indian government program, Production Linked Incentives (PLI), has helped to encourage American companies to invest in the country. Businesses and investors are expecting to see an increase in the PLI scheme budget for the financial year 2025 and a more supportive policy to help foreign investors set up manufacturing facilities in India.
1. Semiconductor and Chip Manufacturing
Modi’s administration approved three semiconductor factories in Gujarat and Assam state with investments over $15 billion. India’s strength in chip design and fabrication has been incentivizing foreign chip makers to set up operations in the country. It has been a home to semiconductor activity accounting for 20% of the world’s chip design talent.
President Biden and PM Modi signed a Memorandum of Understanding (MoU) on the Semiconductor Supply Chain and Innovation Partnership in June 2023. Following that, the Indian government approved the proposal of Micron Technology, an American producer, to set up a semiconductor unit in Sanand, Gujarat state. The combined investment by Micron and the two government entities over both phases will be up to $2.75 billion, which is expected to create up to 5,000 new direct and 15,000 community jobs.
The leaders also welcomed Lam Research, an American supplier of wafer-fabrication equipment and related services in the semiconductor industry, to train 60,000 Indian engineers, which will accelerate India’s semiconductor education and workforce development goals. Applied Materials, Inc., a Virginia-based provider of materials engineering solutions, has announced that it will invest $400 million to establish a collaborative engineering center in India.
In January 2024, Qualcomm, the American chip giant that designs semiconductors and wireless telecommunications products, said it is expanding its Chennai operations with a new design center focusing on wireless technology. The company is already designing chips end-to-end in India and shipping them globally.
2. Automobile and EV Manufacturing
On March 15, the Indian government approved a new policy on EV manufacturing. The policy allows all international players to qualify for a duty reduction and attain a localization level of 50% by their fifth year of operations in the country.
The United States and India underscored the importance of decarbonizing the transportation sector, including accelerating the deployment of zero-emission vehicles and continuing collaboration to promote public and private financing for electric transportation. According to the White House, some of the initiatives discussed during the meeting between Biden and Modi included:
- An MoU under the US Agency for International Development to support Indian Railways’ target to become a “net-zero” carbon emitter by 2030,
- Payment security mechanism that will facilitate the deployment of 10,000 made-in-India electric buses in India and,
- India-based Epsilon Carbon Limited’s plans to invest $650 million in a US greenfield electric vehicle battery component factory.
The challenges for businesses and investors are not necessarily an issue of investing in and getting into the Indian market, but staying on long-term seems like a major hurdle for some players. Malik, speaking at Carnegie said, “While India had a large pool of engineering talent, it lacks a fully developed ecosystem compared to competitors like Vietnam and Japan.” A more aggressive and pragmatic push toward supportive business policies, such as labor laws, is expected to facilitate companies who want to invest in India.
India's Diaspora in the United States
India has a large diaspora in the United States, becoming an increasingly powerful force for rallying support at home and abroad. Most Indians who live outside India do not vote in Indian elections, as they can only vote in person in their constituencies back home. The BJP manifesto in 2014 called the diaspora “a vast reservoir to articulate the national interests and affairs globally” that would be “harnessed for strengthening Brand India.”
Blinken speaking at the same USIBC event said, “Here in the United States, (we have) an Indian American diaspora over 4 million strong and growing stronger every day.” He added, “The US and India’s education systems have produced the leaders of some of our most iconic companies – from Google to Infosys. Indian Americans have created a third of all immigrant-founded startups in the United States. That is extraordinarily powerful.” With a growth of nearly 20% in only the past year, Indian students are also poised to become the largest international student group in the United States, according to the White House.
The US and India are devoted to advancing stronger institutional solidarity and people-to-people connections. The meeting between President Biden and PM Modi resulted in some of the initiatives for the diaspora, including the creation of the Indo-US Global Challenge Institute under the joint task force formed between the Association of American Universities (AAU) and Indian educational institutions, such as the Indian Institutes’ of Technology (IIT).
India's Foreign Policy
India has become more influential on the world stage and has improved ties with regions it views as vital to its interests, including the Indo-Pacific and the West. Its core foreign policy principle is strategic autonomy, which involves avoiding formal alliances to give itself flexibility and independence.
The 2024 BJP manifesto reaffirms key aspects of Indian foreign policy, including aspirations for permanent membership in the United Nations Security Council, freedom of navigation in the Indian Ocean, and taking a leading role for the Global South.
A clear focus of India’s soft power diplomacy is also stated in the manifesto. The next government is committed to establishing Thiruvalluvar Cultural Centers’ worldwide to showcase India’s cultural heritage, including Yoga, Ayurveda, classical Indian languages, and classical music.
India’s Maritime Vision (SAGAR) on Indo-Pacific security and growth aligns with US interests in promoting a peaceful, free, and open Indo-Pacific region. Both countries have made significant progress through various multilateral institutional arrangements, such as the Initiative on Critical and Emerging Technology (iCET), the 2+2 Ministerial Dialogue, and the Quadrilateral Security Dialogue (also known as the Quad).
Dr. S. Jaishankar, the External Affairs Minister to India, speaking to India Today for an interview stated, “The relationship today is really solid.” He added, “We continue to consult regularly to whole host of issues.”
This report is based partly on the author’s attendance at an event hosted by the Carnegie Endowment for International Peace on April 17, 2024, titled “India in Modi’s Third Term.”
Arrizka Faida is a Spring 2024 Young Professional at the East-West Center in Washington DC. She received her master’s degree from Cornell University, Brooks School of Public Policy, studying MPA in Science, Technology, and Infrastructure Policy.