Modi Misses Mark

Markets, it would appear, are something less than efficient when it comes to pricing elections.

Earlier this week, investors were taken aback by the scope of Morena’s landslide in Mexico’s largest-ever ballot. The peso plunged the most in four years on concerns that Claudia Sheinbaum, AMLO’s chosen successor, could govern with a supermajority.

Fast forward to Tuesday, and markets were shocked when initial vote counts out of India suggested Narendra Modi’s victory won’t be the sweeping affair tipped by exit polls. Indeed, Modi’s BJP, by itself, looked set to fall short of an absolute parliamentary majority for the first time in a decade.

The high-flying Nifty 50, which hit a record Monday, plunged as much 8.5% in a wild rout. It later pared losses to “just” 6% in Mumbai.

As the figure shows, Tuesday’s crash counted among the worst in years.

Investors were working on the assumption that BJP would cruise. And it did. Just not in the lopsided fashion observers had come to expect. In 2019, Modi’s party won 303 of 543 seats. India’s ethnonationalist strongman had even loftier ambitions for this year’s election, a six-week, multi-phase affair that saw more than 640 million Indians cast votes.

272 is the parliamentary majority threshold, and exit polls released a couple of days ago suggested an easy path. Fast forward to Tuesday, and it looked like BJP would win just 240 seats which, without delving too far into the legislative math, means the party will need its junior alliance partners to govern.

That’s not a “problem,” per se, and Modi’s probably going to secure a third term. But it may water down his gung-ho Hindu nationalism, and it’s a blow to investor sentiment. Modi’s pro-business.

For all his populist appeal, Modi presides over a collection of pet oligarchs, not exactly like Vladimir Putin, but not entirely unlike Putin either. The Indian economy’s doing well, but the country’s an extreme version of a “haves” and “have-nots” society. According to Thomas Piketty, just nine million people in India control 40% of the country’s wealth. There are 1.4 billion people there. The same nine million people earn almost a quarter of total income.

“Our estimates suggest that inequality declined post-independence until the early 1980s, after which it began rising and has skyrocketed since the early 2000s,” Piketty and three other academics wrote, in an 86-page study published in March. “The quality of economic data in India is notably poor,” they added, which may suggest inequality in the country is in fact far worse than the study’s already dire conclusions indicate.

You can understand, then, why “Mr. Market” was upset to learn that Modi’s party underperformed at the polls: Markets and everybody to do with them love a good Gilded Age. And India’s experiencing one under Modi.

The other thing India’s experiencing under Modi is democratic backsliding. Severe democratic backsliding. Modi’s a raving ethnocentrist. Let’s not forget — blinding as the splendor of his three-term reign can be — that Modi was once banned from entering the US due to his role in countenancing one of the most grisly episodes of religiopolitical violence in modern world history: The Gujarat riots.

I realize most readers probably aren’t familiar with that tragedy. If that’s you (i.e., if you’re unfamiliar) here’s how it started, as recounted by The New Yorker‘s Dexter Filkins:

On February 27, 2002, a passenger train stopped in Godhra, a city in Gujarat. It was coming from Ayodhya, where many of the passengers had gone to visit the site where [the Babri Masjid mosque] was destroyed, ten years earlier, and to advocate for building a temple there. Most of them belonged to the [V.H.P.] the religious wing of [the Hindu nationalist volunteer paramilitary organization Rashtriya Swayamsevak Sangh].

While the train sat at the station, Hindu travelers and Muslims on the platform began to heckle one another. As the train pulled away, it stalled, and the taunting escalated. At some point, someone—possibly a Muslim vender with a stove—threw something on fire into one of the cars. The flame spread, and the passengers were trapped inside; when the door was finally pushed open, the rush of oxygen sparked a fireball. Some fifty-eight people suffocated or burned to death. As word of the disaster spread, the state government allowed members of the V.H.P. to parade the burned corpses through Ahmedabad, the state’s largest city. Hindus, enraged by the display, began rampaging and attacking Muslims across the state.

Mobs of Hindus prowled the streets, yelling, “Take revenge and slaughter the Muslims!” According to eyewitnesses, rioters cut open the bellies of pregnant women and killed their babies; others gang-raped women and girls. In at least one instance, a Muslim boy was forced to drink kerosene and swallow a lighted match.

At the time, Modi was Chief Minister of Gujarat. As Filkins went on to note, Modi made himself “invisible” as the riots spread, and although he “summoned the Indian Army,” soldiers were “held in their barracks” while “in many areas of Gujarat, the police not only stood by but, according to numerous human-rights groups, even took part.”

Modi was eventually absolved of blame by India’s top court in a controversial decision. But… well, suffice to say he was complicit, and everybody from New Delhi to D.C. damn well knows it.

Modi’s Hindu nationalism borders on the maniacal, and although India’s a thriving democracy in some respects, his governing style’s unmistakably autocratic. As The Washington Post helpfully reminded Modi’s friends in D.C. on Tuesday, some Indian opposition parties “had their bank accounts frozen and their leaders jailed by the government in the run-up to the election.”

(Very) long story (very) short, Modi’s a dangerous fanatic. He’s also a fascist. That’s crucial context for this election, although I don’t pretend to know the extent to which it impacted the results.

The market reaction was the mirror image of the price action which followed the vote in Mexico. There, markets were unnerved by the threat of a supermajority for Sheinbaum. In India, the prospect of lost dominance for BJP upended assets.

The New York Times‘s Mujib Mashal, reporting from New Delhi, summed it up. “If the current [vote] trends hold, it will suggest either that Modi’s popularity and his aura of invincibility are waning, or that his party had become so unpopular at the local level that it took his personal push to help it scrape by,” he wrote.

In the same March study mentioned above, Piketty wrote that on his estimates, “the Billionaire Raj headed by India’s modern bourgeoisie is now more unequal than the British Raj headed by the colonialist forces.” That kind of inequality, Piketty went on, “is likely to facilitate disproportionate influence on society and government.”