Assessing the Political and Economic Risks and Opportunities in India Under Modi's Third Term

India's political and economic landscape under Prime Minister Narendra Modi's third term remains a focal point for global investors. With Modi navigating internal party dynamics, evolving foreign policy, and domestic economic reforms, the interplay of political stability and governance strategies will shape India's attractiveness as an investment destination. This analysis examines the risks and opportunities arising from Modi's political longevity, his governance approach, and their implications for foreign direct investment (FDI) and market stability.

Modi's Political Longevity: A Double-Edged Sword

Modi's tenure has been marked by an unyielding grip on power, bolstered by his party's ideological machinery and a strong personal brand. However, as he approaches the age of 75—a traditionally unofficial retirement benchmark within the Bharatiya Janata Party (BJP)—questions about succession and internal party cohesion have resurfaced. While the BJP has publicly denied formal retirement norms, historical precedents, such as the sidelining of senior leaders like L.K. Advani, suggest that age-based transitions have historically paved the way for younger leadersModi turns 75 – the unofficial retirement age for his ruling party^[2].

Amit Shah, the Union Home Minister, has explicitly stated that Modi will remain in leadership until at least 2029, signaling a potential extension of his influenceModi turns 75 – the unofficial retirement age for his ruling party^[2]. This assurance may stabilize investor sentiment in the short term, as Modi's continuity aligns with predictable policy trajectories. However, prolonged leadership could also harden political polarization, particularly as critics highlight concerns over democratic backsliding and majoritarian governanceNarendra Modi - Wikipedia^[1]. For investors, the key risk lies in the potential for factional infighting within the BJP if succession debates intensify, which could disrupt policy continuity.

Governance and Economic Reforms: A Mixed Bag

Modi's governance has prioritized infrastructure, digital transformation, and social welfare, with initiatives like the Jal Jeevan Mission (universal water access), Ayushman Bharat (healthcare coverage for 500 million people), and the Pradhan Mantri Jan Dhan Yojana (financial inclusion) serving as cornerstones of his economic agendaKnow the PM | Prime Minister of India^[3]. These programs have enhanced India's global reputation as a market of scale and ambition, with the government consistently improving its “Ease of Doing Business” rankingKnow the PM | Prime Minister of India^[3].

However, FDI inflows have faced headwinds. Global data from 2024 shows a 7% decline in FDI to developing countries, with Asia witnessing an 8% dropNarendra Modi - Wikipedia^[1]. While India's specific Q1 2025 FDI figures remain undisclosed, the broader trend reflects challenges such as global supply chain shifts and domestic economic slowdowns. The Modi government has responded with investor-friendly measures, including streamlining approval processes and incentivizing technology-driven sectors under the “Make in India” initiativeKnow the PM | Prime Minister of India^[3]. Yet, structural issues—such as bureaucratic delays and regulatory ambiguities—persist, tempering the optimism of foreign investors.

Foreign Policy and Geopolitical Balancing Acts

Modi's foreign policy has increasingly emphasized strategic autonomy, balancing relationships with the United States, Russia, and China. Recent tensions with the U.S. over tariffs on Indian exports were partially de-escalated through renewed trade talks with President Donald TrumpIn India’s Rebound From Trump Blows, Modi Has No Easy Choices^[4]. Simultaneously, Modi has deepened ties with Russia and China, exemplified by high-profile engagements with Vladimir Putin and Xi JinpingModi turns 75 – the unofficial retirement age for his ruling party^[2]. This multi-axis diplomacy offers India geopolitical leverage but introduces risks of alignment conflicts, particularly as U.S. officials express concerns over India's strategic neutralityIn India’s Rebound From Trump Blows, Modi Has No Easy Choices^[4].

For investors, the geopolitical balancing act presents both opportunities and uncertainties. Strengthened ties with Russia and China could boost energy and infrastructure investments, while U.S. trade tensions may deter capital in export-oriented sectors. The ability to navigate these dynamics will be critical for sustaining market stability.

Risks and Controversies: Navigating a Fractured Consensus

Despite Modi's popularity, his governance has drawn criticism for exacerbating communal tensions and eroding democratic normsNarendra Modi - Wikipedia^[1]. The rise of majoritarian policies, coupled with a centralized decision-making style, has raised concerns about long-term social cohesion and institutional checks. For investors, such risks could manifest in policy volatility or reputational damage, particularly in sectors sensitive to social unrest.

Conclusion: A Calculated Investment Proposition

India under Modi's third term remains a paradox of promise and peril. The prime minister's political longevity and economic reforms offer a stable framework for long-term growth, particularly in technology and infrastructure. However, internal party dynamics, geopolitical uncertainties, and domestic governance challenges necessitate a cautious approach. Investors must weigh the allure of India's vast consumer base and strategic reforms against the risks of political polarization and regulatory friction.