-Indian Prime Minister Narendra Modi 

Fresh from declaring victory in India's election, Prime Minister Narendra Modi offered few details on the agenda for his third term, but went out of his way to underline he would continue to focus on raising the country's military preparedness and clout.

That should come as good news to the United States and its other allies, as they focus increasingly on keeping China’s sweeping maritime claims and growingly assertive behavior in the Indo-Pacific region in check.

“The government will focus on expanding defense production and exports,” Modi told a crowd of supporters at his party's headquarters after election results came in. He spoke of his plan to increase security by lowering India's dependence on arms imports. “We will not stop until the defense sector becomes self sufficient.”

Defense cooperation with the U.S. has greatly expanded under Modi, particularly through the so-called Quad security grouping that also includes Australia and Japan.

It’s a two-way street, giving the U.S. a strong partner neighboring China, which Washington has called its “pacing challenge,” while strengthening India’s defense credibility against a far more powerful rival.

“India is currently a frontline state as far as the Americans are concerned,” said Rahul Bedi, a New Delhi-based defense analyst. “The Indian navy is a major player in the Indian Ocean region.”

The defense relationship was also at the top of U.S. President Joe Biden's agenda when he congratulated Modi on the election results.

In a call, “the two leaders emphasized their deepening the U.S.-India comprehensive and global strategic partnership and to advancing their shared vision of a free, open and prosperous Indo-Pacific region,” the White House said.

It added that National Security Advisor Jake Sullivan would soon travel to New Delhi “to engage the new government on shared U.S.-India priorities.”

It was about a year into Modi's second term when India's defense focus took a sharp turn toward China, when troops from the two nuclear neighbors clashed in 2020 in the Galwan Valley in the disputed northern border region of Ladakh and 20 Indian soldiers were killed.

“China really is India's long term strategic challenge, both on the border and in the Indian Ocean as well,” said Viraj Solanki, a London-based expert with the International Institute for Strategic Studies.

“This has resulted in a number of defense partnerships by India shifting, or just focusing on countering China's growing influence in the Indo-Pacific region,” he said.

Beijing has a close relationship with Pakistan, India's traditional rival, and China has been increasing defense cooperation with India's neighbors, including Nepal and Bangladesh, as well as the Maldives and Sri Lanka.

“China is really trying to engage more with these countries and develop its own influence and presence,” Solanki said. “I think that is a concern for New Delhi and something that will lead to increased competition in the Indian Ocean over the next few years.”

In congratulating Modi on the election results, Chinese Foreign Ministry spokesperson Mao Ning said that a “sound and stable ” relationship between India and China was “in the interest of both countries and conducive to the peace and development of the region."

She also added that China stood “ready to work with India,” but her comments were significantly more muted than the Foreign Ministry's remarks on Modi's last win in 2019 — before the border fight. At that time, the Foreign Ministry called the two nations “important neighbors” and said China wanted to "deepen political mutual trust, carry out mutually beneficial cooperation and push forward the closer partnership between the two countries.”

Modi has always governed with his party in the majority, but after a lackluster performance in the election will now be forced to rely on coalition partners, and will face a stronger and invigorated opposition.

The main opposition Congress party is unlikely to challenge Modi's defense reforms, but has been critical of how he has handled the border issue with China and may pressure him on that front, Bedi said.

“Modi has not been entirely truthful, or very economical with the truth as far as the situation in Ladakh is concerned,” he said. He referred to a Defense Ministry document that was published online, and quickly removed, which had suggested Chinese troops entered Indian territory during the 2020 confrontation.

“The opposition, I am sure, will raise questions and ask the government to come clean on what the real situation is.”

Under Modi's program of military modernization and reform, his government has sought to grow the private defense manufacturing sector, a space previously occupied solely by the government-run organizations, and has eased foreign direct investment regulations to try and encourage companies to establish themselves in India.

In a flagship project, the country launched its first home-built aircraft carrier in 2022, part of a plan to deploy two carrier battle groups to counter China’s rising maritime power.

Much of India's military equipment is of Russian origin, and delays on delivery and difficulties of procuring spare parts due to Russia's invasion of Ukraine has also provided impetus for India to diversify defense procurement, looking more to the U.S., France, Israel and elsewhere, Solanki said.

As it seeks to strengthen ties with India, Washington has agreed to a deal that will allow General Electric to collaborate with Hindustan Aeronautics to produce fighter jet engines.

Speaking at the Shangri-La defense conference in Singapore last weekend, U.S. Defense Secretary Lloyd Austin said the countries were also co-producing armored vehicles.

“The relationship that we enjoy with India right now is as good or better than our relationship has ever been,” he said. “It's really strong.”

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It's been 3 days since Modi won, and we're already seeing what it's costing him

• Narendra Modi is still in power, but now his allies can start making demands of him.

• These kingmakers want Cabinet positions and special funding, reports say.

• It's a stark change from when Modi won easily in previous elections without needing his allies.

As Indian Prime Minister Narendra Modi assembles his next government, the calculus clearly differs from his past 10 years in power.

Small political factions allied with his party, the Bharatiya Janata Party, have become vital to his hold on India's leadership. Tuesday's election result showed that Modi wouldn't have secured a simple majority in parliament had they not joined his cause.

It's a humbling moment for the BJP, which, in the past two elections, easily achieved a simple majority without the need for its allies.

This year, it fell 32 seats short of the 272 parliamentary seats necessary to win. The rest of its coalition, the National Democratic Alliance, pulled Modi through with another 52 seats, meaning a desertion of several allied parties could turn the tide of the election.

And don't they know it. Now increasingly dubbed the kingmakers by international media, these smaller factions are jockeying for important concessions such as Cabinet positions and special status for their states.

A new style of Cabinet for Modi

Two major players here are the Telugu Desam Party and the Janata Dal (United) party, which hold 16 and 12 seats, respectively. Modi's alliance would have achieved only 265 seats, seven below the majority mark, without them.

Both parties are known to have switched loyalties before and only joined forces with Modi in the months before the 2024 election.

Reuters reported on Thursday, citing two anonymous sources, that the Telugu Desam Party was seeking federal funds to complete irrigation projects in the state of Andhra Pradesh and construction for its capital.

The Guardian's South Asia correspondent, Hannah Ellis-Petersen, reported that the party was apparently demanding five Cabinet positions and the position of parliamentary speaker.

She added that meanwhile, Janata Dal (United) was said to be asking for three Cabinet seats.

That would drastically change Modi's government's composition, which had all Cabinet positions filled by BJP members.

The local outlet The New Indian Express reported on Friday that the BJP was already considering dropping some of its previous Cabinet ministers, particularly out of a pool of 19 who lost big in their elections this year.

There are about 50 portfolios to be filled, but ministers often take multiple positions or share responsibilities, meaning a typical Cabinet is just below 30 members.

An uncertain road ahead for the BJP

Still, Ellis-Petersen reported that the BJP appeared to have set boundaries on what could be demanded:

Modi has so far secured the assent of his allies, who collectively declared this week that they would form a new government under him.

Yet the haggling for loyalties is new territory for Modi's leadership, potentially marking a new era in how decisively he can project his vision over the country.

He didn't have long to negotiate, either. Modi has already tendered his resignation to India's president and is expected to be sworn in for his third term over the weekend.

The prime minister has campaigned heavily on India's rising status in the global economy and promised to turn the country into the world's manufacturing hub. He'd boldly projected for the BJP to win 350 seats, with his coalition earning about 400 this year.

With his election victory far less decisive than expected, the Indian stock market posted its worst day in four years.

One of the major concerns from voters has been a surge in joblessness, particularly among young Indian graduates. India's unemployment rate was 8.1% in April, up from 7.4% in March, according to the Centre for Monitoring Indian Economy.

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Allies back Modi for third term after election setback

Narendra Modi is set to be India's prime minister for a third time, a day after humbling election results which saw his majority slashed by a resurgent opposition.

Mr Modi was backed to be prime minister again following a meeting with his National Democratic Alliance (NDA) on Wednesday.

The 73-year-old had found himself unexpectedly reliant on the NDA's smaller parties to reach a parliamentary majority after his own party fell short of the 272 needed to form the next government.

However, the opposition - which won 232 seats to the NDA's 293 - has yet to formally concede.

It was holding its own meeting on Wednesday in the capital, Delhi, to discuss next steps.

Mr Modi is likely to be sworn in for a record-equalling third term later this week.

Mr Modi and his Hindu-nationalist Bharatiya Janata Party (BJP) won 240 seats following the weeks-long, seven-stage election, making them the largest party in the Lok Sabha, India's lower house.

But it is a significantly reduced number for the prime minister: in 2019, the BJP won 303 seats, and Mr Modi had said he was aiming for 370 seats this time round.

Instead, they have had to rely on NDA partners to secure Mr Modi's third term.

According to an NDA release, he was "unanimously" chosen as their leader at the meeting at his Delhi residence, adding they were "committed to serving the poor, women, youth, farmers and exploited, deprived and oppressed citizens of India".

Exactly what concessions its partners may have elicited from the BJP remains to be seen. Ahead of the meeting, there was speculation that demands from more powerful groups may have included ministerial positions in return for their support.

It is the first time Mr Modi will have governed in coalition without his party having an outright majority, and it is unclear what the next five years will look like.

Nilanajan Mukhopadhyay, who has written a biography of Mr Modi, told AFP news agency it would "force Modi to take the point of view of others".

"We shall see more democracy and a healthy parliament," he added.

"He will have to be a leader that he has never been; we will have to see a new Modi."

Meanwhile, the opposition INDIA coalition has been celebrating the results - despite not winning.

Congress president Mallikarjun Kharge hailed the "overwhelming support received by our alliance" and said voters had sent a message opposing the BJP's "politics of hate, corruption and deprivation".

"This is a mandate in defence of the Constitution of India and against price rise, unemployment, and crony capitalism and also to save democracy," his statement on social media added.

Following the NDA's declaration of victory, the White House congratulated Mr Modi and said the US was hoping to work with India to "ensure a free and open" Asia.

This year's Indian election was the largest the world has ever seen. More than 600m people took part - or 66% of the country's eligible voters. Nearly a billion people had registered to vote in total – about one in eight of the global population.

Voting was staggered over seven rounds between 19 April and 1 June for security and logistical reasons. Much of the election took place in extreme and deadly heat as temperatures in parts of India soared to nearly 50C.

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Indian Stocks Recoup Losses Sparked by Modi’s Election Upset

 Indian stocks surged to a new all-time high, recouping losses from Tuesday’s unexpected election result that triggered a record selloff in the world’s fifth-largest equities market.

The NSE Nifty 50 Index closed 2.1% higher at 23,290, bringing its weekly gain to more than 3%. The surge over the past three sessions came as Prime Minister Narendra Modi’s party got allies to form a government. The central bank’s decision to hold its benchmark interest rate while raising economic growth projection also contributed to the advance on Friday.

A fresh high at a time when concerns about the sustainability of India’s premium valuation are growing and foreign withdrawals are rising underscore the growing heft of domestic investors in India’s almost $5 trillion equity market.

The gains after RBI’s policy, where it said the economy will grow at 7.2% this year, against the earlier forecast of 7%, signal the India story has many more drivers. India’s economic upcycle is likely to continue in the long term due to factors such as a rising middle class and strong demographics.

The rate decision comes just days after the Bharatiya Janata Party lost its majority in parliament, forcing it to share power in a coalition government. That has spurred some concern over potential fiscal populism.

The BJP-led alliance met in New Delhi on Friday and accepted Modi as the leader for the coalition. Modi and his council of ministers are expected to be sworn in by India’s president on Sunday, according to the Press Trust of India.

RBI’s growth projection change is the biggest positive surprise, according to Shrey Jain, chief executive of New Delhi-based brokerage SAS Online. “Equity investors should now look for the details of the formation of the government while expecting a pro-growth budget.”

While most stocks rallied on Friday, the shares of state-run enterprises are yet to recover from Tuesday’s sharp selloff. Their sector index is the worst performer among the National Stock Exchange of India’s industry gauges this week after falling about 2%.

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India opposition accuses Modi of 'stock market scam'

Mr Gandhi has accused top BJP leaders of giving misleading financial advice

Indian opposition leader Rahul Gandhi has demanded an investigation into a stock market crash that hit investors at the end of the general election.

He accused top Bharatiya Janata Party (BJP) leaders of making misleading predictions about stock prices surging after 4 June, the day the results were announced.

Mr Gandhi, from the Congress party, claimed that Prime Minister Narendra Modi encouraged people to buy stocks before this, which led to them losing money when the market crashed.

Mr Modi's party, the BJP, has denied the allegations.

Mr Gandhi has demanded that a Joint Parliamentary Committee (JPC) investigate the alleged scam and the role of Mr Modi and senior ministers.

He alleged that weeks before election results, Mr Modi, ex-Home Minister Amit Shah, and former Finance Minister Nirmala Sitharaman advised people to "buy stocks before 4 June", suggesting that the market would surge after, anticipating a BJP victory.

In May, Mr Shah told NDTV news channel in an interview: "Stock market crashes should not be linked with elections, but even if such a rumour has been spread, I suggest that you buy (shares) before 4 June. It will shoot up."

Mr Gandhi has labelled it "the biggest scam" in India's stock market history, alleging that the manipulation benefited certain "dubious foreign investors", causing Indians to lose trillions of rupees.

Mr Modi's departing trade minister, Piyush Goyal, has refuted the allegations, accusing Mr Gandhi of misleading investors.

Exit polls had predicted that the BJP would comfortably win a majority - securing more than 272 seats in the 543 member parliament - while together with its alliance partners, this figure would touch 360-370.

However, the results were drastically different from these predictions, with the BJP failing to reach the halfway mark on its own and the National Democratic Alliance (NDA) getting just 293 seats.

Mr Gandhi has now claimed that the exit polls were "fake" and that the BJP knew that it was not going to win more that 220 seats "from its internal survey and the feedback from the intelligence agencies".

"Despite that, the exit polls were made to show that the BJP was winning a large number of seats," Mr Gandhi alleged.

This, he alleged, led to massive buying of stocks on 3 June.

When the results came out the next day, the Indian stock market saw one of its worst crashes in years, with investments worth billions of dollars being wiped out.

The BJP's Mr Goyal said that it was Indians who gained from the rise and fall in stock prices, since in April and May, when the market was on an upswing, foreign investors had sold shares which Indians had bought.

And this happened again on 4 June, when the market crashed, he said.

"So foreigners bought at a high price and sold at a low price. Indian investors sold at a high price and bought at a low price. So in a way, Indian investors earned even in this period. No one suffered a loss," he said.

On Friday, Congress leader Jairam Ramesh said that Mr Goyal's explanation was "rubbish" and added that it did not answer specific questions raised by Mr Gandhi.

The BJP has not responded to Mr Ramesh's allegations.

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India targets Taiwan deal as Modi ratchets up tensions with China

After securing a surprisingly narrow victory during India’s latest elections on Wednesday, a flood of congratulations rushed in for Narendra Modi.

From Rishi Sunak to Emmanuel Macron, world leaders queued up to congratulate the Indian prime minister on his historic third term.

Yet it was Modi’s exchange with one overseas counterpart that raised eyebrows in diplomatic circles.

“My sincere congratulations to Prime Minister [Modi] on his election victory,” wrote Taiwanese president Lai Ching-te on social media platform X.

“We look forward to enhancing the fast-growing Taiwan-India partnership.”

Replying to the post, Modi said: “Thank you for your warm message. I look forward to closer ties as we work towards mutually beneficial economic and technological partnership.”

The Indian leader’s statement – though seemingly dull at first glance – will be seen as a subtle dig at China, at a time when relations between New Delhi and Beijing are decidedly frosty.

China’s communist government regards Taiwan as a rogue province that must reunify with the mainland, furiously objecting whenever foreign countries engage with the democratic island independently.

Modi, who has been India’s prime minister since 2014, certainly understands this.

“He’s a seasoned politician,” says Gray Sergeant, an Indo-Pacific expert at the London-based Council on Geostrategy. “So there’s no doubt he would have known what he was doing here.

“It shows he is not prepared to mend the relationship on Beijing’s terms alone, or step on what is, for China, a very red line.”

Unsurprisingly, the statement triggered a swift rebuttal from China.

“India has made serious political commitments regarding the one-China principle and should be vigilant against the political schemes of the Taiwan authorities and refrain from actions that violate the one-China principle,” Mao Ning, a spokesman for the Chinese Foreign Ministry told reporters on Thursday.

“There is only one China in the world.”

Relations between China and India hit a low in 2020 following violent clashes between troops from both countries along their shared 2,100-mile border in the Himalayas.

Today, around 60,000 troops from each side remain stationed along the disputed area, turning it into an effective powder keg.

However, New Delhi is also growing increasingly wary about its neighbour’s activities across the broader Indo-Pacific region, where Beijing is building up its military presence.

The two powers have both been on manoeuvres, with India recently opening its own military facility near the Maldives amid fears China is seeking bases in nearby Sri Lanka and Pakistan.

Meanwhile, Chinese president President Xi Jinping has sought to thwart India’s ambitions to play a bigger role on the global stage.

Beijing vetoed its neighbour’s bid to join the Nuclear Suppliers Group in 2016, blocked New Delhi’s efforts to put Pakistan-based terrorists on global watchlists and has repeatedly denied its attempt to join the powerful United Nations Security Council.

That is despite support from all other sitting members, including Russia.

Against that backdrop, India has sought to foster closer alliances with partners, including the US, Australia and Japan, all of which sit on the “Quad” security alliance, to help contain Chinese aggression.

However, with Modi having suffered a surprise loss of his parliamentary majority in the latest Indian elections – forcing him to rely on coalition partners – his latest position on Taiwan may be a sign of strength regarding his foreign policy.

“Symbolically, it shows efforts to send a signal to Beijing that despite the Modi government’s weakened mandate, India will maintain its more assertive and muscular foreign policy and not kowtow to pressure from China on the border,” says Dr Chietigj Bajpaee, a senior research fellow for South Asia at the Chatham House foreign policy think tank.

“More broadly, New Delhi is trying to show that it has means of counterbalancing Chinese encroachments into India’s self-perceived sphere of influence in South Asia by deepening engagement with Taiwan.”

India’s ties with Taiwan are not just for show, however.

New Delhi has no formal diplomatic ties to the self-governing island but has sought a deeper economic partnership with Taipei since the 1990s.

This has involved courting investment from Taiwan and more recently striking agreements that allow greater numbers of Indian migrants to go there to work.

Around $3.4bn (£2.66bn) of goods were exported by Taiwan to India in 2022, including $937m of integrated circuits, with other top exports including plastics and computer and office equipment.

However, the jewel in Taiwan’s economic crown remains its unparalleled ability to craft semiconductors, also known as microchips – a technology India is increasingly keen to gain a foothold in.

While the Modi government has carefully guarded against Chinese involvement in sensitive technology areas, it has sought to woo Taiwanese firms, including by rolling out a $10bn scheme to incentivise domestic manufacturing.

“The Indians are very concerned about any potential points of leverage that China could have over them,” says Sergeant. “And like a lot of other countries, they’d like a slice of the Taiwanese semiconductor pie.”

India has enjoyed only limited success with chips so far, with Taiwanese firm Powerchip teaming up with Mumbai’s Tata to establish India’s first leading-edge microchip factory (capable of making 12-inch silicon wafers).

To unlock more investment from Taiwanese chip companies, Taipei has argued a free-trade agreement is needed.

That would demonstrate an attempt to stand up to Beijing, while also improving India’s industrial capabilities.

“Substantively, a key objective of the Modi government is to develop India into a global manufacturing hub, particularly in the area of critical and emerging technologies including semiconductors,” explains Chatham House’s Bajpaee.

“Closer alignment with Taiwan is key to achieving this objective: hence, the tweet from Modi that he looks forward to a closer ‘economic and technology partnership’.

“India is eager to attract further Taiwanese investment and technology transfers.”

Modi’s social media post on Wednesday may well have been the latest example of a foreign leader pushing back against Chinese efforts to isolate Taiwan, by challenging Beijing in a subtle manner.

For example, Lord Cameron, the UK Foreign Secretary, was recently among the world leaders to congratulate Taiwan’s president for an election victory, albeit without mentioning his title.

“That is partly a response to China’s own ‘grey zone’ tactics, which seek to break the will of the Taiwanese people and force them to surrender their sovereignty without a fight,” says Sergeant at the Council on Geostrategy.

“So all these little actions are meant to push back a bit and help.”

So even with a weakened mandate, it seems Modi is keen to show how India will join the West in refusing to kowtow to China.

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