In the first anniversary of its third term, the Narendra Modi-led government has reasons to look back with some satisfaction — both politically as well as economically. The numerical setback in the Lok Sabha elections did force the Bharatiya Janata Party (BJP) to go back to the drawing board to recraft its political and governance outreach, but it didn’t take much time for the party to regain momentum by notching up surprisingly big wins in a string of Assembly polls. If the BJP turned the tide in Haryana and Maharashtra, two states where it suffered reverses in the Lok Sabha polls, it also finally wrested Delhi after 26 years. True, the government’s coalition partners have extracted sundry promises and largesse but even they know they are in no position to do anything but toe the BJP’s line.

In any case, they were small favours considering the political returns. Consider how the coalition partners supported the Waqf (Amendment) Bill in Parliament, despite initial concern among them over its provisions. The government has also gone ahead with the push to its “One Nation One Election” Bill, despite lacking the two-thirds majority required for the approval of the constitutional amendment measure. There have been some smart political moves as well, witnessed in the decision to include caste enumeration data along with the decadal census, though one may argue this is a classic example of political opportunism as the decision is a sharp reversal of the BJP’s stance in the 2024 election campaign.

On the economic front, one of the significant achievements has been the sharp fall in India’s poverty ratio. Though it comes with a lag, the ratio has fallen sharply from 9.5% in 2022-23 to 4.9% in 2023-24. Better still, experts like former Reserve Bank of India Governor C Rangarajan has said GDP growth seems to have been a major contributor to the fall. Admittedly, economic growth may not sustain at the pace (6.9%) seen in the second half of the last fiscal, but there are enough and more tailwinds which should support growth momentum in FY26 closer to last year’s pace. This, of course, isn’t enough but needs to be seen in the context of an uncertain global environment. There is every reason to believe that consumption, particularly rural, will be robust but the key question is whether the other demand-side drivers — investment, exports, and government spending — will have an impact.

The challenges, no doubt, are too many. While our economy is primarily driven by domestic factors, growing ties with developed nations through trade and capital flows means it cannot be fully insulated from adverse global events. The domestic headwinds are all too familiar: stubbornly indifferent private capex, weak urban consumption, patchy rural recovery, some indications of household balance sheet stress, and a negative credit impulse. The International Monetary Fund recently projected that India will edge past Japan to become the world’s fourth largest economy in 2025. While this marks a notable milestone, in per capita terms, India is still near the bottom of the global league tables: 136 in nominal GDP and 119 in purchasing power parity terms. Besides, slow manufacturing growth has now emerged as a serious structural constraint. Therefore, reforms that address structural bottlenecks remain crucial to raise India’s attractiveness as an investment destination and unlock its growth potential. In the remaining years of his third term, the Modi government would do well to craft an evidence-based, analytically-grounded strategic economic direction.