Modi set for record third term with reduced majority

Indian Prime Minister Narendra Modi's alliance was headed for a narrow majority as vote-counting in the general election neared completion on Tuesday, with the tally well short of a widely expected landslide.

Modi's own Bharatiya Janata Party (BJP) was falling short of a majority of its own in the 543-member parliament, the trends showed.

Having to depend on allies to form the government could introduce some uncertainty in policy-making as Modi has ruled with an authoritative hold in the last decade.

The Hindu nationalist BJP won a majority of its own when it swept to power in 2014, ending India's era of unstable coalition governments, and repeated the feat in 2019.

The prospect of Modi having to rely on allies spooked markets with stocks falling steeply. The rupee also fell sharply against the dollar and benchmark bond yields were up.

"A narrower-than-expected victory for Modi's alliance may raise doubts about the new government's ability to push through politically difficult reforms seen as crucial to sustain India's economic growth, which is already the world's fastest," said Vasu Menon, managing director of investment strategy at OCBC in Singapore.

"Despite this, the fact remains that the BJP-led alliance is still set to win a third term, which means continuity in the government's infrastructure and manufacturing-led drive to boost economic growth."

Markets had soared on Monday after exit polls on June 1 projected Modi and BJP would register a big victory, and the ruling National Democratic Alliance (NDA) was seen getting a two-thirds majority and more.

TV channels showed the NDA was ahead in about 290 of the 543 elective seats in the lower house of parliament, where 272 is an overall majority, with counting nearing its end.

They showed BJP accounted for around 240 of the seats in which the NDA was leading, compared with the 303 it won in 2019.

The opposition INDIA alliance led by Rahul Gandhi's centrist Congress party, was leading in over 230 seats, higher than expected. Congress alone was leading in nearly 100 seats, almost double the 52 it won in 2019 - a surprise jump that is expected to boost Gandhi's standing.

"The country has unanimously and clearly stated, we do not want Narendra Modi and Amit Shah to be involved in the running of this country, we do not like the way they have run this country," Gandhi told reporters, referring to Modi's powerful number two, Home Minister Shah.

Two key regional allies in the NDA endorsed Modi as the next prime minister, rejecting local media speculation that they could be wavering in their support or possibly switch sides.

The Telugu Desam Party (TDP) and Janata Dal (United) said their pre-poll alliance with BJP was intact and they would form the next government.