‘Still a strong story.’ Why India’s election shock won’t derail its economic boom

New Delhi CNN —

Narendra Modi hasdeclared victory in India’s election but he’ll need the support of smaller parties to govern, a shock result that could make it harder for him to pass major economic reforms.

India boomed during Modi’s first two terms as prime minister, leapfrogging the United Kingdom to become the world’s fifth biggest economy and growing by 8.2% in the last fiscal year.

But the new government will need to make more big changes to sustain that pace if India is to become an economic superpower and a manufacturing rival to China.

“With a more fragmented government, we believe policy making in general is going to become more difficult going forward,” said Peeyush Mittal, a portfolio manager at Matthews Asia, a San Francisco-based investment fund.

Experts have highlighted land reform as an example of policies that might now be tougher for Modi to implement. Companies face more barriers to accessing land in India than in China. It is also much harder to hire or fire workers.

India will need to address those issues if it is to capitalize on the massive rethink underway among companies on supply chains. International firms want to diversify their operations away from China, where they are threatened by rising tension between Beijing and Washington.

Some of the world’s biggest firms, including Apple (AAPL) supplier Foxconn, are expanding their operations significantly in India. But while the country has emerged as a major hub for electronics manufacturing, it is still lagging behind China in sectors such as clothing, toys and furniture.

Despite the surprise electoral setback for Modi’s right-wing, Hindu-nationalist Bharatiya Janata Party (BJP), experts say the world’s fastest growing major economy will