Modi's Big India State Vote Win Positions Him For Second Term

EghtesadOnline: With an overwhelming victory in India’s most important state election, Prime Minister Narendra Modi has secured his place as the country’s most influential leader in more than three decades, eclipsing his rivals and positioning his party for a second term in 2019.

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12 March 2017

His Bharatiya Janata Party won a clear majority in Uttar Pradesh that will allow Modi to aggressively push his economic agenda, although he will still face entrenched opposition to some reforms in the upper house of parliament, according to Bloomberg.

Jubilant crowds of saffron-clad supporters celebrated the victory outside the party’s headquarters in New Delhi and in Lucknow, the capital of Uttar Pradesh. The strength of his mandate shows Modi’s appeal remains powerful nearly three years after he swept to power with the largest majority in 30 years.

"Modi represents that national-level figure that we’ve not seen since Indira Gandhi," said Sandeep Shastri, a political scientist and pro-vice chancellor of Bengaluru’s Jain University, referring to India’s most popular prime minister.

The BJP and its coalition partners won 311 seats in Uttar Pradesh’s 403-member assembly, according to the Election Commission of India, up from 47 seats in 2012 and bringing it to power for the first time since 2002. The BJP also won in the northern state of Uttarakhand, but its ally was ousted from power in the agricultural state of Punjab by the Congress Party. It’s unclear who will form government in the smaller states of Goa and Manipur.

‘Decisive Advantage’

This election sets the tone for the politics of the next 24 months, Shastri said, noting that as the party battles a series of state elections in Gujarat and elsewhere, the victory "puts the BJP at a decisive advantage."

"The prime minister’s hand has been strengthened" to implement bold policy reforms, he said. "He will likely try for some measures in the coming months that will capture the imagination of voters that will help him win in 2019."

Investors can expect pro-business reforms in Uttar Pradesh, such as digitizing land records and making permit applications easier, said Jan Zalewski, a senior Asia analyst at Verisk Maplecroft.

At the federal level, Modi could tackle non-performing bank loans to revive lending and continue to pursue policies aimed at pushing India’s vast informal economy into more formal channels, he said, noting that entails some risk.

"Reforms may also yet encompass entirely unexpected and out-of-box moves, along the lines of demonetization," he said. "Modi’s inclination to draft such moves behind closed doors means that policy predictability will be low on that front."

Modi will "aggressively expedite" key structural economic reforms that will promote India’s growth, said Ajay Bodke, chief executive office at Mumbai-based brokerage Prabhudas Liladher Pvt. The passage of the nation a sales tax "is a mere formality now."

Programs on agriculture, power distribution, affordable housing, delivery of more LPG cylinders, rural connectivity and direct transfer of subsidies to poor people will be a priority, he said, along with a renewed push for land and labor reforms through state governments.

"Equity markets will rejoice with this outcome," Bodke said.

Anti-Corruption Moves

As the battle for the state intensified, the BJP’s competitors relied on the idea that Modi’s Nov. 8 decision to withdraw high denomination notes from circulation in a bid to tackle corruption was unpopular and that people would vote against it.

"On the contrary, Modi and his team have managed to sell the policy as a good thing, warts and all," said Michael Kugelman, senior associate for South Asia at the Washington-based Woodrow Wilson Center.

India’s rural poor, who bore the brunt of suffering caused by the note ban, emerged as surprising supporters of the policy, based on a belief that Modi’s actions would even out the scale of inequality and reduce corruption.

BJP President Amit Shah credited Modi’s pro-poor policies for this landslide win. The mandate will change the course of country’s politics and herald a "new era of the politics of performance," over the politics of caste, he said.

The outcome will enable Modi to sharpen his anti-corruption moves, said Shailesh Kumar, senior Asia analyst at political risk form Eurasia. "This will manifest in additional policies aimed at cleaning areas such as real estate, gold, and campaign finance," Kumar said in a research note.

However the BJP won’t be able to secure a majority in the upper house, leaving difficult legislative changes such as federal land and labor reforms potentially out of his reach, Kumar said.

Unchecked Power

With such a large mandate, some commentators warn the government’s power could go unchecked.

Modi’s increasing centralization of political powers will impact the autonomy of key institutions that could be perceived as obstacles to the reform progress, Zalewski said. "That may include the judiciary, the central bank, and enforcement agencies."

"This victory gives him power and influence, both within the party and the government, that could go unchallenged," Shastri said. "That could also be a factor that leads to developments and practices which, to a certain extent, could be unaccountable."