HSS India Insights
MODI 3.0: THE ROAD AHEAD

Clearly, the NDA partners have conceded the portfolio arrangements. But, they may not relent on their key demands, owing to their electoral compulsion. Both JDU and TDP have been long demanding for special category status for their states, due to the states’ economic backwardness and financial non-viability. Bihar remains one of the least developed states in terms of the socio-economic indicators. After its bifurcation in 2000, the residual Bihar lost major sources of minerals and heavy industries to the new state of Jharkhand. The level of urbanisation in Bihar stood at 11.3% in 2011, which was one of the lowest compared to other Indian states and Union Territories. It has now increased to 15.3%. The growth of Bihar’s economy critically depends on agriculture.

Due to its reorganisation in 2014 into two states, the residual Andhra Pradesh lost Hyderabad, the state capital and ‘commercial and industrial powerhouse’ of the erstwhile united Andhra Pradesh. Not only that, it inherited a massive debt of ₹1,18,050 crores (approx. 13.12 billion Euros) in 2014, which more than doubled to ₹2,64,451 crore (approx. 29.38 billion Euros) in 2019 and further to ₹4,28,715 crore (approx. 47.64 billion Euros) in 2023. The economies of Andhra Pradesh and Bihar seem to be in shambles, with their projected debt to be at least 33% of their respective gross state domestic product (GSDP) for 2023-24.

The Concept of SCS came into being as part of recommendations of the Fifth Finance Commission in 1969. Special category status has been granted based on an ‘integrated consideration’ of the following five criteria:

1. hilly and difficult terrain
2. low population density and/or sizeable share of tribal population
3. strategic location along borders with neighbouring countries
4. economic and infrastructural backwardness
5. non-viable nature of State finances

Initially, only three states were SCS, but today a total of 11 states (8 northeastern states, Jammu and Kashmir, Himachal Pradesh and Uttarakhand) enjoy the status of SCS. They are mostly hilly states with difficult terrain and strategically located along the international borders.

In the past, the Modi government has refused to grant special status to Bihar and Andhra Pradesh, on the grounds that they do not qualify for SCS as per the existing norms, dissolution of the Planning Commission in 2014 and the Fourteenth Finance Commission’s proscription of giving SCS to new states. In 2015, following the spirit of cooperative federalism, the then Modi government accepted the recommendation of the Fourteenth Finance Commission to increase the share of states in the centre’s tax revenue from 32% to 42% to provide enhanced fiscal autonomy to the states. This led to the shrinking of centre’s fiscal space. To secure the centre’s fiscal space, India’s Economic Survey of 2014-15 recommended that there should be “commensurate reductions in the Central Assistance to States”.

In case of SCS, the centre provides non-lapsable 90% of the fund to implement centrally sponsored schemes and the remaining 10% comes from the states. In case of the General Category States (GCS), the centre provides 60% - 70% of the total funding, which lapses if unspent. The centre also forgoes tax revenue by providing tax breaks to the states.

Bringing more states under SCS will put more burden on the already stressed fiscal space of the centre. If JDU and TDP do not relent on their demand for special status to their states, the centre may ask the Sixteenth Finance Commission, constituted in December 2023, to look into the viability of such demands. Alternatively, the centre may choose to provide a ‘special package’ to these two states, avoiding increased demands from other states for special status.  

Making India developed by 2047, which marks one hundred years of India's Independence, remained a major poll pitch by the BJP in the 2024 elections. The vision of a ''Viksit Bharat (Developed India)'' runs through the BJP elections manifesto of 2024.  PM Modi in his speech at the launch of 'Viksit Bharat @2047: Voice of Youth' in December 2023 outlined his vision as follows: “Today, every institution and every individual should move with a resolution that every effort and act will be for Viksit Bharat. The aim of your goals, your resolutions should be only one – Developed India."

Inclusivity, gender mainstreaming and youth participation lie at the core of realising the vision of a developed India. In his address at the Viksit Bharat Viksit Rajasthan Programme in February 2024, PM Modi said, “To achieve the vision of a developed Bharat (India), we are diligently focusing on empowering four key segments of society: the youth, women, farmers, and the poor.” 

The vision of Viksit Bharat “underscores the vital role of women’s active contribution in the development journey rather than as passive recipients of development benefits”. The concept of women-led development found prominence under India’s presidency of the G20 summit in 2023. The G20 nations agreed to create a Working Group on Empowerment of Women, with an aim to “support countries in tackling gender inequality and boosting women's empowerment in its different dimensions”. The Government of India’s effort is to shift the focus from women’s development to women-led development. PM Modi’s emphasis on the enhanced participation of Nari Shakti (women’s power) in India’s development journey is supported by various policies and schemes. Nari Shakti Act 2023 to give 33% reservation in the Parliament and State Assemblies is one such enabler for supporting women-led development.  The ruling party’s manifesto of 2024 Lok Sabha elections reiterates the Nari Shakti vision of the party in the following words:

''Our vision is to create a Viksit Bharat where Nari Shakti is an equal partner and stakeholder in society’s progress. Through a series of legal and policy frameworks, we will ensure the dignity of women and provide them with equal growth opportunities.''

In his first speech after the Lok Sabha election results 2024, PM Modi re-emphasized that “women-led development is at the centre of the government’s policy”. This could be part of BJP’s larger electoral strategy to woo women voters who play decisive roles in the Indian elections.  

Foreign policies are designed to achieve and amplify the national development outcomes. Viksit Bharat's vision will guide India's foreign policy in the years ahead. Through its multi-vector diplomacy, Modi 3.0 is expected to build on the image of India as Vishwa Bandhu (global friend) and drive national economic growth and trade through enhanced outreach, partnerships and regional connectivity.

Sea-borne trade plays a critical role in boosting economic growth. The current government will expedite the rollout of PM Modi’s vision of Security and Growth for all in the Region (SAGAR) to heighten maritime security in the Indian Ocean region. The SAGAR vision overlaps with Quadrilateral Security Dialogue (QUAD) as some of the SAGAR partner countries are also key to the success of QUAD’s Indo-Pacific strategy.  Securing sea lines of communication will be one of India’s key geopolitical priorities in the Indo-Pacific, to protect its growing interests in the region. India may recalibrate its position in the QUAD and reorient it more towards traditional security from its non-traditional security focus as it stands today.

The ruling party BJP’s 2024 election manifesto promises the establishment of India– Middle East – Europe Economic Corridor (IMEC) to promote India’s trade interests. Under the Indian Presidency of G20, Saudi Arabia, the European Union (EU), India, the United Arab Emirates (UAE), France, Germany, Italy, and the United States of America (USA) signed an agreement to establish the IMEC to “stimulate economic development through enhanced connectivity and economic integration between Asia, the Arabian Gulf, and Europe”. IMEC has already been gaining traction among the developed nations. In the recently concluded G7 Summit in Italy, the G7 leaders reiterated their commitment to deepen the coordination and financing for IMEC. 

In the face of global instability at various levels, continuity in the allocation of ministerial berths provides India with political stability, which is key to managing geopolitical volatility and humanitarian crises, as well as advancing existing international partnerships. Among other things, the strategic partnership between India and the EU will be given a further boost. Soon after being sworn in as the Prime Minister for third consecutive term, Modi's participation in the G7 summit in Italy underlines the growing ties with EU countries. PM Modi's historic visit to Austria is particularly significant as it is the first time in 41 years that an Indian Prime Minister has visited this EU country. With the recent easing of export restrictions by Germany, military cooperation between India and Germany is set to reach new heights. These developments demonstrate the deepening strategic and defence partnership between India and the EU and EU Member States, and point to future potential.

Besides addressing developmental issues through foreign policy instruments, the new government will also leverage its foreign policy to deal with its internal security challenges, especially in the border states. Cross-border terrorism in Jammu and Kashmir, rising separatism (Khalistan movement) in Punjab and conflict in Manipur pose multi-dimensional security challenges to the government. On the very day when the Prime Minister got sworn into office, terror attacks were reported at various locations in Jammu and Kashmir, killing civilians including kids and security forces. With relation between India-Pakistan deteriorating, any meaningful dialogue between the two on Jammu and Kashmir seems a distant reality. India has upped the ante by refusing to talk to Pakistan unless cross-border terrorism stops.

Of late, there have been some signs of a revival of the Khalistan movement in Canada, which would affect the Indian state of Punjab, which has been the centre of the Khalistan movement in the past. India accuses Canada of being soft on Khalistan supporters and allowing the assassination of Indira Gandhi, the former Prime Minister of India, who was killed by her security guards belonging to the Sikh community, to be celebrated on Canadian soil . Recently, the Canadian Parliament observed a minute's silence to mark the one-year anniversary of the death of Hardeep Singh Nijjar, who was wanted by the National Investigation Agency, India’s counter-terrorism agency. In response, the Indian Consulate in Vancouver held a memorial service on 23 June 2024 to commemorate “the 39th Anniversary of the cowardly terrorist bombing of Air India flight 182 (Kanishka) in which 329 innocent victims, including 86 children, lost their lives in one of the most heinous terrorist air disasters in the history of civil aviation”. The Khalistan issue continues to shadow India-Canada relations.

Despite the state and central governments’ intervention, the conflict in Manipur between the tribal groups continues unabated. Just after taking the charge, the new government held a high-level meeting to review the security situation in Manipur. It shows that restoring peace in Manipur is going to be a security priority for the new government. In a bid to stop infiltration from the 1,600km India-Myanmar border, the central government has already ended the free movement regime that existed between India and Myanmar. India has also decided to fence the border with Myanmar. While such measures may lead to greater internal security and peace, they may have implications for India’s Act East Policy, which aims to enhance connectivity and trade with ASEAN countries, including Myanmar.

In 2020, India and China came face to face in Galwan valley along the Line of Actual Control which is about 3500 km long. Since then, 21 rounds of military-to-military level talks have been held between the two countries, but there has still been no complete disengagement between them. In April 2024, China renamed 30 places in the Indian state of Arunachal Pradesh.  In response, now the newly elected government has reportedly decided to rename 30 Tibetan sites. India also allowed a US Congressional delegation to meet Dalai Lama on 19 June 2024. This comes at a time when the US Congress passed the Resolve Tibet Act which calls for peaceful resolution of the Tibet issue and dialogue between China and Dalai Lama.

When it comes to the balancing act between the US and Russia, India will tread cautiously. Russia has been India’s time-tested and trusted partner. On the other hand, India-US relations are gaining momentum and reaching new heights. The Ukraine issue will test the agility of the Indian foreign policy and diplomacy. So far India has been able to navigate between these two global powers. India refused to sign the joint communiqué of the Swiss Peace Summit for Ukraine as Russia was not part of the Summit. New Delhi argued that both parties Russia and Ukraine should be present in such a peace initiative.

As can be seen above, the year ahead of Modi 3.0 will be full of challenges on multiple fronts, from development to security to diplomacy. But before Prime Minister Modi can take on these challenges, he would need to ensure that there are no cracks in the NDA that could affect his coalition government.