By Eric Bellman and Bill Spindle 

NEW DELHI -- Indian Prime Minister Narendra Modi appears on track for a second term if exit polls bear out, but less clear to investors and executives is which version of Mr. Modi would take charge: the business-friendly leader or the divisive nationalist.

While Mr. Modi's first term started in 2014 with ambitious plans to boost investment and growth through reform in what is now the fastest-growing large economy in the world, momentum for overhauls has sputtered in recent years. The 7-week election was dominated by Mr. Modi's nationalist rhetoric and sharp criticism from opponents who are concerned that he is moving India toward a system dominated by the Hindu majority.

Exit polls indicated Mr. Modi's Bharatiya Janata Party will likely garner the most seats in the next parliament and he could even win an outright majority for a second straight election. That would be a huge blow for the BJP's national rival, the Indian National Congress, which once reigned over Indian politics but has struggled in recent years.

Results of India's election, in which more than 500 million people voted, are to be announced on Thursday. In the world's biggest democracy, exit polling has sometimes failed to accurately reflect the actual voting results in past elections. But a consistent overall trend in a variety of polls has usually proved reliable, and the polls this election have uniformly indicated a strong showing by the BJP.

Mr. Modi and the BJP leadership took a populist tack in the election, all but dropping the pro-business rhetoric that dominated their 2014 campaign. They fanned nationalist and Hindu religious pride by trumpeting a recent military confrontation with Pakistan, touting the country's newly demonstrated ability to shoot down a satellite, and boasting about the government's efforts to protect cows, which Hindus view as sacred.

"The people of India are at the forefront of the 2019 campaign," Mr. Modi tweeted. "They have taken it upon themselves to elect a strong, stable, honest and nationalist government."

Some observers dismiss the nationalist pivot as a temporary move to win votes. The BJP, they say, will be able to use a new mandate to push through critical reforms that will expand the economy and create the nearly million jobs a month needed to employ its burgeoning youth population. The expansion of India's economy has been slowing and dipped below 7% late last year.

But others say a dominating repeat victory driven by the BJP's populist base could kill critical overhauls.

"He has veered away from economic issues and doubled down on traditional BJP Hindutva issues," said Vivek Dehejia, an economics professor at Carleton University of Ottawa, using a term that refers to a form of Hindu nationalism. "A win sends the message that they don't have to worry that much about the economy, they can get re-elected without a major economics reforms push that would use political capital."

Hindu nationalist organizations that worked closely with the ruling party believe their time has come. They are demanding a Hindu temple be built at the site where a mosque was destroyed in 1992 -- an explosive issue that has led to violent sectarian clashes in the past.

Many of these organizations want a national ban on the slaughter of cows, which would hurt the part of the economy that supports many poor and Muslim families. They are pushing to end any special treatment of Muslims, which make up about 14% of the populace.

One top BJP official referred to illegal immigrants -- most of whom are Muslim -- as termites, and the party caused an uproar by fielding a candidate who is being tried for alleged involvement in a 2008 terrorist attack that killed six Muslims.

"Hindus are expecting much more," said Vinod Bansal, a national spokesman for Vishva Hindu Parishad, a Delhi-based Hindu organization affiliated with BJP's nationwide parent body Rashtriya Swayamsevak Sangh.

In Mr. Modi's first five years in office, his administration eagerly publicized the launch of new government services such as broad-based health care and free bank accounts for the poor, and promoted initiatives to extend access to electricity and install tens of millions of new toilets as part of a campaign to promote cleanliness.

His government also introduced a new bankruptcy code and a unified national taxation system, important changes that will eventually make doing business in the country easier, according to most economists.

But he has failed to push through changes that were intended to spur growth over the long haul but would cause painful dislocations and were unpopular with many voters.

To achieve the higher growth rates needed to employ and enrich its young and growing population, India needs to privatize state-owned companies such as Air India, loosen outdated restrictions on hiring and firing workers, free up agricultural markets and reduce lending rates, Surjit Bhalla, an economist who has worked with the Modi government, told a group of business leaders in an event this week.

"We have done well but not good enough," he said. "In order to compete in this world we need to change some of our most basic policy assumptions which have held us back."

The stock market in Mumbai opened this week with a 4% jump after exit polls pointed to the return of a BJP-led government. In the six months after their first landslide victory in 2014 the benchmark index, the Sensex, surged more than 20%.

Mr. Modi has been popular with foreign investors for his efforts to streamline the economy, including a new nationwide goods and services tax, replacing some government subsidies with direct cash transfers and a new bankruptcy code, said Samir Arora, founder and fund manager of Helios Capital Management in Singapore.

But they shouldn't expect some other changes that they would like to see, including changes to laws governing labor and land use, Mr. Arora said.

"Foreigners have liked the things that were done in the first term," he said. "More reforms may happen but labor and land are not likely."

--Krishna Pokharel and Corinne Abrams contributed to this article.

Write to Eric Bellman at eric.bellman@wsj.com and Bill Spindle at bill.spindle@wsj.com

(END) Dow Jones Newswires

May 22, 2019 12:41 ET (16:41 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.