India Modi 3.0: Coalition Arithmetic, Two Budgets, and the FY27 Reform Window: Deluair Consultancy

Narendra Modi returned to office on June 9, 2024, with the BJP holding 240 Lok Sabha seats, 32 short of a single-party majority and the worst Treasury bench result since 2009. The NDA coalition now depends on Chandrababu Naidu's TDP at 16 seats and Nitish Kumar's JD(U) at 12 seats, both leaders with prior records of switching sides. Finance Minister Nirmala Sitharaman delivered two budgets in eight months. The July 2024 Union Budget revised the fiscal deficit target from the 5.1 percent interim figure to 4.9 percent of GDP and committed INR 11.11 trillion of capital expenditure. The February 2025 Budget moved the income tax exemption ceiling to INR 12 lakh under the new regime, set the FY26 deficit target at 4.4 percent, and lifted the FY26 capex budget estimate to INR 11.21 trillion. RBI's MPC cut the Repo rate from 6.50 percent to 6.00 percent across two meetings between February and April 2025. This brief assesses the coalition arithmetic, the fiscal pivot, the PLI audit verdict, and the eight-state assembly cycle that determines whether Modi 3.0 reaches the 2027 Presidential election with reform momentum intact.

The 240 number: what coalition arithmetic actually constrains #

The 2024 general election delivered a structural break. The BJP won 240 Lok Sabha seats, down from 303 in 2019, against the 272 majority threshold. The NDA aggregate of 293 sustains the government, but the marginal seats now sit with TDP at 16 and JD(U) at 12, plus Shiv Sena (Eknath Shinde faction), LJP (Ram Vilas), and JD(S) at smaller weights. The opposition INDIA bloc closed at 234 seats, with the Indian National Congress alone rising from 52 to 99. The Election Commission of India result sheets and the Lok Sabha Secretariat confirm these figures.

Coalition leverage is not symmetric. Naidu's Andhra Pradesh result was the most leveraged single bargain in Indian politics in 2024: TDP swept the simultaneous state assembly with 135 of 175 seats, paired with the Lok Sabha sweep, after spending five years out of power and several months in detention. Nitish Kumar entered the coalition having switched alliance partners four times since 2013. Both leaders extract differently. Naidu wants capital expenditure flowing into Amaravati and the Polavaram irrigation project. Kumar wants centrally sponsored scheme allocations and special category rhetoric for Bihar. The Argus live entity tracker flags both as continuous switching risk, with a base case of coalition continuity through 2026 and rising tail risk into 2027.

The Rajya Sabha arithmetic is the second-order constraint. The BJP-led NDA holds a working majority in the Upper House through 2026, but the staggered retirements from Andhra Pradesh, Bihar, Maharashtra, and West Bengal across 2026 and 2027 tighten the legislative calendar. Constitutional amendments, including any push toward simultaneous elections under the One Nation One Election bill referred to the Joint Parliamentary Committee in December 2024, require two-thirds majorities that the present Rajya Sabha composition cannot guarantee.

Bloc or Party	2024 seats	2019 seats	Change
BJP	240	303	minus 63
INC	99	52	plus 47
SP	37	5	plus 32
TMC	29	22	plus 7
DMK	22	23	minus 1
TDP	16	3	plus 13
JD(U)	12	16	minus 4
Shiv Sena (UBT)	9	n.a.	n.a.
NCP (SP)	8	n.a.	n.a.
NDA total	293	353	minus 60
INDIA total	234	n.a.	n.a.

Lok Sabha 2024 result, top blocs and coalition leverage seats

Two budgets in eight months: the fiscal anchor pivot #

Sitharaman's February 1, 2024 interim budget set the FY25 fiscal deficit at 5.1 percent of GDP and capital expenditure at INR 11.11 trillion. After the election the July 23, 2024 full Union Budget kept the capex headline at INR 11.11 trillion but revised the deficit target down to 4.9 percent on stronger nominal GDP growth and a one-off RBI surplus transfer of INR 2.11 trillion announced on May 22, 2024, the largest dividend from the central bank to the sovereign on record. The FY25 revised estimate later moderated capex to INR 10.18 trillion as state-level absorption lagged through the election cycle and the monsoon disruption.

The February 1, 2025 Budget pivoted in two directions. First, the FY26 fiscal deficit target was set at 4.4 percent of GDP, consistent with the medium-term glide path toward a debt-to-GDP anchor by FY31 announced in the Budget speech. Second, the personal income tax exemption ceiling under the new regime was lifted to INR 12 lakh, with rebate adjustments that took the effective zero-tax threshold to INR 12.75 lakh for salaried filers including the standard deduction. The government estimated the revenue forgone at INR 1 trillion for FY26. Capex was restored to INR 11.21 trillion in the FY26 budget estimate, a modest 0.9 percent nominal lift over the FY25 budget headline but a sharper 10.1 percent rise over the FY25 revised estimate.

The composition matters. Roads and Highways received INR 2.87 trillion in FY26 BE, Railways INR 2.52 trillion, and Defence capital outlay INR 1.80 trillion, the three core lines that have driven the post-2020 capex impulse. The Department of Telecommunications, Department of Atomic Energy, and the New and Renewable Energy budgets received above-trend increments. Subsidy expenditure remained dominated by food (INR 2.03 trillion) and fertiliser (INR 1.68 trillion), with the urea component of the fertiliser bill at INR 1.19 trillion, against a long-running review by the Standing Committee on Chemicals and Fertilisers that has not yet been operationalised.

Indicator	FY24 actual	FY25 BE	FY25 RE	FY26 BE
Fiscal deficit, percent of GDP	5.6	4.9	4.8	4.4
Capital expenditure, INR trillion	9.49	11.11	10.18	11.21
Total expenditure, INR trillion	44.43	48.21	47.16	50.65
Gross tax revenue, INR trillion	34.65	38.40	38.53	42.70
Net tax revenue, INR trillion	23.27	25.83	25.57	28.37
Food subsidy, INR trillion	2.12	2.05	1.97	2.03
Fertiliser subsidy, INR trillion	1.88	1.64	1.71	1.68

Union Budget headline numbers, FY24 actual to FY26 BE

Coalition demands: Andhra capital, Bihar package, GST Council pace #

The July 2024 Budget made the coalition transfer explicit. Andhra Pradesh received an INR 15,000 crore special financial package for Amaravati capital city development, channelled through multilateral agency on-lending and central government resources, alongside specific commitments on the Polavaram National Project. Bihar received a stack of allocations: an INR 26,000 crore commitment on highway projects across three identified corridors, a power sector package including a 2,400 MW thermal plant at Pirpainti, and budget mentions for new airports, medical colleges, and sports infrastructure tied to the state assembly cycle.

The GST Council, the constitutional body chaired by the Union Finance Minister with all state finance ministers as members, decelerated through 2024 and 2025. The 53rd Council meeting in June 2024 cleared anti-profiteering sunsetting and procedural relief on litigation. The 54th in September 2024 deferred the rate rationalisation Group of Ministers report. The 55th in December 2024 lowered tax on used vehicles and notified popcorn classification, which became a viral signal of incremental rather than structural reform. The rate rationalisation push, including the merger of the 12 percent and 18 percent slabs and the treatment of insurance, has slipped to a 2026 decision window, with the GoM reconstituted under the Bihar Deputy CM and broader composition.

The political calculation is legible. With TDP and JD(U) holding the marginal seats, the Centre cannot run a confrontational Council on rate rationalisation that hits state revenue without paired compensation. The compensation cess sunset in March 2026 is the binding constraint that forces the next-stage decision. State finance ministers from non-NDA states, including Tamil Nadu, Karnataka, Kerala, West Bengal, and Telangana, now coordinate through pre-Council convenings, raising the floor for any structural change to require explicit fiscal compensation.

RBI's path: 6.50 to 6.00 and the food inflation overhang #

The Reserve Bank of India Monetary Policy Committee held the Repo rate at 6.50 percent from February 2023 through December 2024, the longest pause in the post-FIT regime. Governor Shaktikanta Das exited at the close of his extended term in December 2024 and was succeeded by Sanjay Malhotra, the former Revenue Secretary, on December 11, 2024. The first MPC under Malhotra cut the Repo rate by 25 basis points to 6.25 percent on February 7, 2025, the first cut since May 2020. The April 9, 2025 meeting cut by another 25 basis points to 6.00 percent and shifted the policy stance from neutral to accommodative.

The cut sequence ran into the food inflation overhang. CPI headline reached 6.21 percent in October 2024, breaching the upper tolerance band of the 4 percent plus or minus 2 percent target, on a vegetables and edible oils spike linked to monsoon disruption and global price transmission. Core inflation held in the 3.5 to 4.0 percent band through the cycle, well anchored. The disinflation through Q1 2025 brought headline back inside the band, with food prices easing on rabi sowing recovery and the rice export normalisation. The MPC's framing pivoted from inflation alignment to growth support as Q3 FY25 GDP printed weaker than the September forecast.

The transmission lag is the operational variable. Repo rate cuts pass through the External Benchmark Lending Rate channel within one quarter on retail and SME loans linked to the Repo benchmark, but transmission to MCLR-linked corporate loans runs longer. System liquidity, which moved from a deficit of INR 1.5 to 2.0 trillion in late 2024 to a surplus by Q2 2025 on the back of variable rate repo operations and forex purchases, supports faster transmission into FY27. The 4 percent target glide path remains anchored, with food the residual risk and the southwest monsoon outturn the single most material variable.

PLI scheme audit: where industrial policy actually paid off #

The Production-Linked Incentive scheme was launched across 14 sectors with a notified outlay of INR 1.97 lakh crore. The scheme audit through 2024 and 2025, drawing on Department for Promotion of Industry and Internal Trade disclosures and CAG performance reviews, separates winners from laggards. Mobile manufacturing under PLI for Large Scale Electronics is the unambiguous success: Apple and its three contract manufacturers (Foxconn, Pegatron, now part of the Tata Electronics platform, and Wistron, also acquired by Tata) lifted India's share of global iPhone assembly to roughly 18 percent by FY25, with exports crossing USD 14 billion. Pharmaceutical bulk drugs and active pharmaceutical ingredient PLI delivered import substitution on identified molecules but missed aggregate investment targets.

The semiconductor mission under the modified India Semiconductor Mission, with a notified corpus of INR 76,000 crore for ISM 1.0 plus an extension to a cumulative INR 1,00,000 crore (one lakh crore), anchored four projects: the Tata Electronics-PSMC fab at Dholera, the Tata Assembly and Test facility at Jagiroad, the Micron ATMP at Sanand, and the CG Power-Renesas-Stars OSAT at Sanand. Construction milestones were largely on schedule through 2025, with the Micron Sanand facility on track for first-out in 2026. Automobile PLI sat mid-table: investment commitments materialised but the EV penetration ramp lagged the original ambition, with two-wheeler EV share at 5 percent and four-wheeler EV share at 2.5 percent of new sales in FY25.

White goods PLI for air conditioners and LED components was the slowest, with multiple beneficiaries returning incentive claims unmet on the volume threshold. Textiles PLI under the Man-Made Fibre and Technical Textile cohort progressed but did not reset India's global textile share, which remained anchored by the cotton segment outside the PLI. The Argus platform's live entity tracker maintains scheme-wise milestone monitoring across the 14 sectors. The composite read is that PLI worked where the global value chain was already shifting and India offered scale plus tariff differential, namely electronics. It moved more slowly where it required green-field technology transfer or category creation, namely advanced chemistry cell batteries and high-efficiency solar PV modules.

The eight-state cycle and the 2027 Presidential arithmetic #

Eight state assembly elections fall between 2025 and 2027. Bihar votes in late 2025, with Nitish Kumar's seat tally and the JD(U)-BJP-LJP alliance arithmetic the central question. Assam, Kerala, Tamil Nadu, West Bengal, and Puducherry vote in 2026, the same cycle that produced the 2021 results. Uttar Pradesh, Punjab, Uttarakhand, Goa, and Manipur vote in early 2027, the high-leverage cluster that determines the Presidential election electoral college. Gujarat and Himachal Pradesh fall just outside the window, in late 2027.

The Presidential election arithmetic is mechanical. The electoral college aggregates Lok Sabha MPs, Rajya Sabha MPs, and state legislative assembly MLAs, weighted by state population per the 1971 census. Each MP carries a value of 708 in the current cycle, set to be revised when the Census 2027 results are notified. Uttar Pradesh holds the largest state weight at roughly 83,000 MLA-vote equivalents, followed by Maharashtra, West Bengal, and Bihar. The NDA's electoral college position depends on retaining UP's BJP-led majority in 2027 and on at least one of Bihar 2025 and Maharashtra (already secured in November 2024 at 235 of 288 seats for the Mahayuti). Strategos coalition modelling places NDA Presidential election retention probability at 71 percent in the base case, conditional on UP returning a BJP-led government.

The reform window narrows accordingly. Labour code implementation, the four codes consolidated and notified between 2019 and 2020 but operationalisation pending in most states, requires state-level rule notification and continues to slip on coalition arithmetic. Privatisation has stalled outside the completed Air India transaction (closed January 2022). The BPCL strategic disinvestment was withdrawn in May 2022 and not revived. IDBI Bank divestment, with the government and LIC together holding 94.71 percent and a strategic sale process opened in October 2022, missed multiple closing windows through 2024 and 2025. The LIC IPO, listed in May 2022 at an issue price of INR 949 per share, traded materially below issue through most of 2023 and 2024 before recovering on the broader Nifty rally. The cumulative read is that Modi 3.0 has the macro stability to reach 2027, but the structural reform agenda now requires either a coalition realignment or post-2027 single-party return to escape the marginal-seat veto.

Sources #

Cite this brief

@misc{hossen2026indiamodi3budget2026,
  author = {Hossen, Md Deluair},
  title  = {India Modi 3.0: Coalition Arithmetic, Two Budgets, and the FY27 Reform Window},
  year   = {2026},
  url    = {https://deluair.com/consultancy/insights/india-modi3-budget-2026},
  note   = {Deluair Consultancy briefs}
}

Hossen, M. D. (2026). India Modi 3.0: Coalition Arithmetic, Two Budgets, and the FY27 Reform Window. Deluair Consultancy briefs. https://deluair.com/consultancy/insights/india-modi3-budget-2026

Hossen, Md Deluair. "India Modi 3.0: Coalition Arithmetic, Two Budgets, and the FY27 Reform Window." Deluair Consultancy briefs, 2026-04-26. https://deluair.com/consultancy/insights/india-modi3-budget-2026.

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May 5 to 6, 2026 Monetary policy

Reserve Bank of India MPC

Whether the MPC delivers a third consecutive cut or pauses on monsoon and tariff risk.

June 2026 Monetary policy

RBI MPC and JPM GBI-EM weight test

Whether the cutting cycle ends, whether INR holds 87 to 89 to USD, and whether FPI debt inflows sustain past USD 30 billion.

July 31, 2026 Data release

India FY2027 Q1 GDP and capex print

Whether semiconductor capex translates into manufacturing GVA and the RBI's monsoon-conditioned rate path.

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India Modi 3.0: Coalition Arithmetic, Two Budgets, and the FY27 Reform Window