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India's closer-than-expected election should increase the prospect of productive reforms, the country's chief economic adviser said on Wednesday, while the fundamental drivers of growth remain largely independent of government policy.

Voters returned Prime Minister Narendra Modi for a third term but with a reduced margin that has left his Hindu nationalist party needing coalition partners to govern.

Stock markets tumbled on Tuesday on investor concerns that thorny economic reforms may be postponed but recovered some losses on Wednesday. The government's chief economic adviser, V Anantha Nageswaran, said many tricky reforms were in state government hands and he viewed them as more likely to progress.

"In some cases the responsibility is disproportionately on state governments, sub-national governments," he said, addressing an investor conference hosted by Nomura in Singapore.

"I would even say that the election outcome increases the probability of some of these factor market reforms happening, rather than lowering it, because it creates avenues for dialogue and consensus building."

The factor market refers to land, energy, labour and other inputs in economic production.

Nageswaran was appointed to his role in 2022 and is one of the government's key advisers on economic policy. He also authors India's economic survey, a document that indicates the government's policy direction and serves as a precursor to the budget.

He said the next government will deliver "policy continuity with some change," without detailing any possible changes.

"The supply side infrastructure improvements that have happened - they are for real and they will continue," he said.

Future growth also draws on the health of the banking system and corporate sector, he said. "Both are going to be important drivers, not so much government policy, and those have not been affected by the election outcome."