Tough decisions ahead for a triumphant Modi

When the firecrackers are spent, the drums and cymbals put away and the last of many tonnes of victory laddoos (boiled sweets) distributed, the new Indian Government will have to start taking a series of tough decisions to address problems in an economy which has shown all the signs of drift and neglect over the past few months.

Maybe it was the marathon election itself; maybe it was the sometimes conflicting requirements of Manmohan Singh's Government and the ruling Congress Party hierarchy, but in recent times it seems that a paralysis had gripped the administration as it glided towards its humiliating defeat at the polls.

The first major task for Narendra Modi's resurgent Bharatiya Janata Party (BJP) Government after its Ministers have been selected and sworn in, will be to produce a Budget by next month or at the latest by July. This is likely to be quite different from anything seen in the past decade, containing roadmaps towards fulfilling key BJP election promises such as bringing broadband to every village, WIFI to every town, cleaning up the polluted River Ganges and the creation of 100 new cities to absorb the trend towards rapid urbanisation.

Controversially, it may well start an attack on India's notoriously complicated labour laws, including the previous Government's measure of guaranteeing 100 days paid work a year to the rural poor, which industrialists have faulted for restricting the movement of workers to productive urban jobs.

The industrial sector wants more – cheap land for development, reliable power supplies and above all, better infrastructure. In return it promises to create the 12 million new jobs every year that are needed to absorb a growing young workforce – around half of the nation's 1.2 billion people are aged under 25.

Unemployment is on the rise and the Government's tax-to-GDP ratio has slipped from a peak of 12.5 per cent in 2007-08 to 10.2 per cent now. On the other hand foreign exchange reserves are high and the production of food grains is at record levels.

There is no immediate threat of food shortages and famine which would inevitably lead to significant unrest, but forecasts of a developing El Nino weather pattern could store up problems in the medium term.

The Reserve Bank of India is on record as saying the country's inflation, standing at 8.1 per cent, is its single biggest priority. It wants to cut that by at least two per cent, but three interest rate rises since September have not produced the required results. Further rises would cut across the BJP's plans to reduce the jobless rate by stimulating industry and lead to confrontation between Modi and the bank's hard-line Governor, Raghuram Rajan.

In its manifesto the BJP promised to slash red tape and encourage foreign investment in order to bring down unemployment. This worked when Modi was Chief Minister of Gujarat, but could run into difficulties on the national scale as it is the states which have much of the power to approve projects – and especially as the BJP manifesto has promised more autonomy for state governments.

One factor that will work in the BJP's favour is the size of its election win. With such a clear mandate for change it would be a brave Chief Minister that would stand in the way of Modi's vision for a "new and resplendent India".

Modi did not address foreign policy as comprehensively as domestic issues during the campaign, and this will give him more room for manoeuvre now he is in charge. Past BJP Governments have always talked tough on issues such as relations with Pakistan and the disputed territory of Jammu and Kashmir.

However, Pakistan President Nawaz Sharif was one of the first foreign leaders to congratulate Modi on his victory and during the campaign the BJP leader said he saw no reason why relations between the two countries should not improve as long as there were no repeats of incidents such as the infamous 2008 Mumbai terrorist attacks which killed 164 people.