At the start of 2024, Narendra Modi hailed the opening of a huge new Hindu temple—the Ram Temple in Ayodhya—as a once-in-a-millennium turning point in India’s history. The lavish event, broadcast across the nation, was timed to generate a wave of religious fervour that would carry him in a landslide to a third term as Prime Minister.

But less than five months later, voters in the northern Indian district of Faizabad (where Ayodhya is located) soundly rejected Modi’s party in the general election, part of a broader wave of discontent with his decade-long rule in relatively poorer parts of the country. Once seen as invincible, Modi and his Hindu-dominant Bharatiya Janata Party are now dependent on allies for the first time since he took power in 2014.

The collapse of Modi’s support in Uttar Pradesh, India’s most-populous State and a one-time BJP stronghold, amounted to a collective rebellion from millions of people left behind in one of the world’s fastest-growing economies. India’s 8 per cent annual expansion has spawned a billionaire elite and a growing middle class, drawing swarms of foreign companies and glowing comments from the likes of Elon Musk and Tim Cook.

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But even as the government claims it has mostly eliminated extreme poverty, it has failed to deliver for more than 600 million Indians who survive on $3.65 (~Rs.304.44) or less a day—the official World Bank poverty line for low or middle-income countries. “The temple construction is a very good development,” said Shada Shiv, 34, who lives in one of the Uttar Pradesh districts that saw a big swing against Modi’s party. “But our earnings haven’t gone up—and prices haven’t come down—because of the temple.”

Stock market spiral

Modi’s electoral setback surprised investors, who had piled into Indian stocks betting that his business-friendly agenda would propel the nation’s economy to new heights, especially after early exit polls suggested a strong showing for the BJP. Benchmark stock indexes had their worst day in four years as the results were released, before recovering some of their losses on June 5. Tycoon Gautam Adani, who became Asia’s richest person under Modi and frequently came under attack from the opposition, saw his wealth drop by as much as $25 billion (~Rs.2,08,517.75 crore).

“It’s a sign that a centralised growth model will have to decentralise, that the rapid rise in inequality and the overused politics of religion must be slowed, and the government will have to tread a more inclusive path going forward,” said Will Scholes, London-based fund manager for the Premier Miton Emerging Markets Sustainable Fund. “We would focus on parts of the economy and the population that have been allowed to fall through the cracks.”

Modi, 73, secured support from key coalition members on June 5, paving the way for him to retain his post as Prime Minister. A day earlier, he acted as if nothing happened while claiming victory, saying he would form a government that works “for every class of citizen”. His speech contained no reference to the drop in support for the BJP following a campaign centred around himself, with his likeness plastered on billboards across the country and the party’s manifesto titled “Modi’s Guarantee”. He repeatedly claimed he had been sent by God and predicted his party would win 370 seats—130 more than it actually won.

“India was trending towards a more autocratic country, a country with one leader who had a larger-than-life image. And that unfortunately meant the BJP leadership wasn’t listening to the economic news on the ground.”Raghuram RajanFormer Governor, RBI

But that hubris ran into a strong campaign from a coalition of dozens of regional and caste-based parties intent on stopping him in his tracks. In contrast to the BJP’s personality-driven campaign, the bloc kept its messaging focussed on the issues, even avoiding naming a prime ministerial candidate to keep the group united. Rahul Gandhi—scion of the Nehru-Gandhi political dynasty and a senior leader in the opposition alliance’s main party, the Indian National Congress—travelled from east to west in a two-month whistle-stop tour before the vote, following up on a longer north-south trek in 2022. He accused the ruling party of failing the poor and disadvantaged while warning that Modi poses a threat to India’s independent institutions, noting the frequency of legal cases against opposition leaders.

“India was trending towards a more autocratic country, a country with one leader who had a larger-than-life image,” said Raghuram Rajan, a former governor of India’s central bank and ex-chief economist of the International Monetary Fund who supported the opposition, told Bloomberg Television. “And that unfortunately meant the BJP leadership wasn’t listening to the economic news on the ground. That people were actually suffering hardships.”

Signs of trouble for Modi emerged shortly after voting in the six-week election began in April. A dip in turnout triggered a broad get-out-the-vote effort that saw Modi adopt a more strident tone, firing up his Hindu nationalist base with divisive anti-Muslim rhetoric and attacks on the opposition’s welfare policies. On the ground in Uttar Pradesh, members of Modi’s party could see during the campaign that the Ram Temple inauguration led to a false sense of confidence from senior leaders in New Delhi. Local input into candidates was ignored, according to several BJP members who asked not to be identified to discuss private conversations.

Losing support in some strongholds

Bloomberg’s election tracker showed Modi’s BJP shed support across a wide swathe of northern States that had previously been strongholds for the party. The most surprising swing occurred in Uttar Pradesh, where the BJP took just 33 of 80 seats—down from 62 in the last election in 2019. The BJP won 41.4 per cent of votes in the state, down from 50 per cent in 2019, according to data from the Election Commission of India. With more people than Brazil and the living standards of sub-Saharan Africa, Uttar Pradesh embodies the challenges Modi faced.

The leader of the opposition Samajwadi Party (SP) that performed surprisingly well, Akhilesh Yadav, saw the wave against Modi coming for months. At a rally in a rural town in May, he drew roars from the crowd when he vowed to increase government jobs and waive loans for farmers if the opposition alliance came to power. In an interview at the time, the SP leader said voters in the State were turning against Modi because of a lack of jobs, the high cost of living, and concerns that he would dilute affirmative action policies for marginalised caste individuals. He confidently predicted a win—a forecast that proved true on June 4—including a victory in the district where Modi inaugurated the temple.

“The temple is not putting food on the table,” said Milan Vaishnav, director of the South Asia program at the Carnegie Endowment for International Peace. Modi’s opponents succeeded, he added, because “they were putting front and centre this idea of a two-speed economy—of people who believe that India has these high-flying macro growth numbers, but the fruits of that growth have largely benefited the haves versus the have-nots.”

Modi now has little choice but to govern with more humility. For the first time in his political career, he will have to rely on unpredictable regional parties to keep his coalition together, leaving less room for his broader ambitions. Reports suggested his coalition partners are demanding plum positions in government and other perks to avoid defecting to the opposition, a threat that could hang over Modi throughout his third term.

In a report published June 5, Bloomberg Economics said that the market selloff after the vote may have been premature. The results suggested voters rejected Modi’s divisive rhetoric on religion, it said, putting the focus back on welfare spending, growth, and development issues. Several money managers saw the near-$400 billion (~Rs.33,36,284 crore) stock market wipe out on June 4 as an opportunity to buy into what they see as one of the world’s most promising economies. Traders in the world’s fifth-largest stock market are already revising their playbooks as speculation grows that Modi’s government might consider a consumption-driven stimulus package as well as some aid for the agricultural sector. A gauge of India’s consumer stocks surged the most in four years on June 5.

“The economic message from this election is one of an urgent need to focus on everyday economic realities of average Indian,” said Yamini Aiyar, who until recently was president of the Centre for Policy Research, a New Delhi-based think tank. “The two things that you heard most when you travel and spoke to voters was jobs and price rise.”

Rising inequality

Economists including Thomas Piketty found in a recent study that inequality surged in the first decade of Modi’s rule, with the richest 1 per cent earning almost a quarter of total income, the highest share since at least the 1920s. In a sign of just how much wealth a handful of people are accumulating, the combined wealth of India’s two richest men—Adani and Mukesh Ambani—is more than double what the nation spends on defence every year.

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Adani Group shares, which hit record highs on June 3 in anticipation of a landslide Modi win, fell heavily in the following session before recovering on June 5. A coterie of advisers had asked the tycoon to avoid posting anything on social media about initial election results, said a person familiar with the matter, counselling him to say quiet until the new federal government is formed.

Outside of Mumbai, the financial capital that is home to many of India’s wealthiest people, agrarian distress has risen over the past few decades: In 2023, nearly 3,000 farmers died by suicide in Maharashtra. One of those largely rural districts, Jalna, flipped from the BJP to the opposition in 2024 thanks to farmers like Digambre Jitangre, who earns less than $150 (~Rs.12,511.07) a month. “There is no drinking water here and there is little to earn with farming,” he said in May during the campaign. “I voted for the BJP the last two times. Nothing has been done here.”