World Economy

Modi has a clear mandate but can he deliver?

Will India do more to reduce fiscal deficit?

India's Prime Minister-to-be Narenda Modi has a clear mandate to push forward his economic agenda that some are already referring to as 'Modinomics.' The question now is can he deliver?

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"There are huge expectations that the Modi government can transform the economy," Thomas Barnes from the University of Sydney's Department of Political Economy told CNBC on Monday.

"Modi has made promises to business, he's made big promises in terms of infrastructure, tax reform," he said. "He's also made substantial promises to the rural poor, so he really has raised the stakes and the main problem is going to be whether he can fulfill those expectations."

An alliance led by Modi's Hindu nationalist Bharatiya Janata Party (BJP) won 336 of the 543 seats in India's lower house of parliament in a general election, making it the first time in a quarter of a century that the country will not be led by a coalition government.

The results from the five-week long election were released on Friday and Modi is expected to unveil key cabinet posts in the days ahead.

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BJP prime ministerial candidate Narendra Modi.
Ajay Aggarwal | Hindustan Times | Getty Images

Modi is credited with economic success in the western state of Gujarat where he has served as chief minister since 2001.

During the election campaign he pledged to take decisive steps to unblock stalled investments in power, road and rail projects to revive economic growth that has fallen to a decade low of below 5 percent.

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Some analysts have already revised up their economic growth forecasts for India, Asia's third biggest economy, in the wake of Modi's landslide election win.

"The BJP victory is likely to herald a revival in India's economic fortunes, with the potential to boost Indian GDP (gross domestic product) growth back over 8 percent by 2017," Rajiv Biswas, Asia-Pacific chief economist at IHS Global Insight said in a note.


"Crucial economic reform priorities for incoming PM Modi will be to release his first budget, setting out a roadmap for fiscal reform by reducing the fiscal deficit to below 3 percent over the next three years, including by reducing costly subsidies for energy and food," Biswas added.

Speaking to CNBC's Street Signs Asia, senior BJP leader Yashwant Sinha said the new government would not open up multi-brand retail in India to foreign direct investment.

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"Our view clearly has been and is that as far as foreign direct investment in multi-brand retail is concerned, that is a no go area for present," he said. "There is a lot in the retail sector which is open to foreign direct investment and foreign investors can come and take advantage of that."

India's economy has been marked by sluggish economic growth and high inflation in recent quarters and hopes that a new government will transform the economy has cheered investors.

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India's stock market surged to a record high on Friday and the hit an 11-month peak against the dollar on Monday. The currency has recovered almost 15 percent of its value since hitting a record low last August amid a storm in emerging markets.

"India for many years was a story waiting to happen. There are promises to be fulfilled and the execution will be difficult," said Guy Stear, the head of research for Asia at Societe Generale .

"The biggest difficulty will be dealing with the federal system, trying to get changes made," he added. "What we are going to see is that people expect quick results and if we don't see that there will be a pull-back in stocks."