The election outcome in India has turned out to be a huge political blow for Prime Minister Narendra Modi and his ruling party, and has significant implications on how he intends to govern the country, observers say.  

Modi did not get the landslide victory that was widely predicted by exit polls ahead of results. Instead, he will enter his third term with a much-weaker mandate than initially anticipated.

His Bharatiya Janata Party lost dozens of seats bringing its projected total down to 240 — falling short of an outright majority in the country’s lower house of parliament.

It was a marked difference from the sweeping mandates of 2014 and 2019, when the BJP garnered 282 and 303 seats respectively, achieving a majority on its own.

Modi projected a brave front, touting his electoral win as “the first time post 1962 that an incumbent government has emerged victorious for the 3rd time,” during a speech at the BJP headquarters in New Delhi on Tuesday. 

He added that it will be “a new ‘Golden Chapter’ in India’s development.”

But the outcome is more complicated for Modi, who will be forced to rely on coalition partners for the first time in his decade-long rule — and some of them may not share his economic or political agenda for the country.

“We are in an unknown territory,” said Neelanjan Sircar, a senior fellow at the Centre for Policy Research in New Delhi on Wednesday.

“We’ve never seen a Modi government have to act in a coalition. We know that the party has been engaged in decisive action, in centralization,” Sircar told CNBC’s “Squawk Box Asia.”

“Can they adjust in the ways that a party needs to and a leader needs to when you’re leading a coalition?” he said, adding Modi will likely have an “uneasy relationship” with its coalition partners.

“It’s his face on everything and he lost it in the core states in the north. That is very significant because what it tells you is that there’s something wrong,” Roche, who is president and global strategist at Independent Strategy, told CNBC’s “Street Signs Asia” on Wednesday.

It showed that Modi’s ticket of running on Hindu nationalism didn’t work in “Hindu nationalist areas,” he said, adding that he hopes Modi will now govern in the interest of economic reforms.

BJP’s performance in Uttar Pradesh, which has been the ruling party’s bastion over the past decade, delivered one of the biggest shocks in the election. The party suffered some of its high-profile losses here, with political BJP heavyweights like Smriti Irani among others, losing their seats.   

In another setback in Ayodhya, the BJP lost a key Faizabad constituency just months after Modi inaugurated the newly built Ram temple. The highly controversial temple was erected on the site of a mosque razed by Hindu extremists, which analysts argued was aimed at energizing the Hindu voter base.

In the previous two elections, the BJP really had India’s “Hindi heartland under lockdown,” said Sircar.

This time it faced very significant losses in three of those states — Maharashtra, Uttar Pradesh and Rajasthan, the analyst added, stating that this was mainly because of the Modi government’s overreach.

In the lead-up to the election, “we had two chief ministers arrested. We had numerous other political opposition leaders facing investigative agencies …. in some places, people would say they were worried about the constitution,” Sircar noted, adding that the government had crossed several “red lines.”

Critics have pointed out that under Modi’s strongman rule, India has witnessed signs of democratic backsliding given the enduring crackdown on minority rights and civil society.  

Going into the election, Modi’s popularity endured despite India’s economic problems such as high youth unemployment, inflation and income inequality.

While Modi retains his charisma, he’s lost that “aura of electoral omnipotence,” Michael Kugelman, director of the Wilson Center’s South Asia Institute, said in a post on X.

“That’s a big part of what’s long defined him as a leader,” he said, adding it was a “humbling moment” for both the BJP and Modi.

Speaking as results were still trickling in on Tuesday, Congress leader Rahul Gandhi said the election outcome was a victory for India’s people and democracy.

“This was a fight to save the constitution,” he said, while addressing a press conference in New Delhi, adding it sends a strong message to Modi that “people didn’t like the way you governed the country.”

The election outcome was “good news” for India’s democracy overall, said Roche.

“You want India to be a true democracy — not something dreamt up on populist grounds, which ultimately will damage economic performance more.”