State election wins give Modi a reform mandate
Voters hand BJP big win despite chaos caused by last year's demonetization
YUJI KURONUMA, Nikkei staff writer
NEW DELHI Prime Minister Narendra Modi's ruling Bharatiya Janata Party has won a resounding victory in India's most populous state, in a result seen as an endorsement of the government's reform program.
Beating pollster forecasts, the BJP netted 77% of seats in the Uttar Pradesh Legislative Assembly, up from 12% in the last parliament. The party, with its allies, is also likely to secure a majority in the state's appointed upper house in the years to come.
"I thank the people of Uttar Pradesh from the bottom of my heart. This historic win of the BJP is a victory of development and good governance," Modi wrote on Twitter on the afternoon of March 11, as the scale of the BJP's victory became clear.
BJP President Amit Shah told a press conference the same day that the victory was an endorsement of Modi's efforts to fight corruption and poverty through the demonetization policy introduced last November. Results from the northern state of Uttarakhand, also announced on March 11, show another remarkable result for the BJP, which nearly doubled its representation in the Legislative Assembly.
Demonetization, which saw the withdrawal of 86% of bank notes in circulation by value, caused an uproar in a country overwhelmingly reliant on cash transactions, and people lined up for hours at banks to exchange the 500- and 1,000-rupee notes being phased out. Nonetheless, in an election that effectively served as a referendum on this and other reform efforts, voters appear to have endorsed the government's attempt to crack down on wealthy tax dodgers hoarding cash.
"Politically, demonetization has proved to be a masterstroke," Manish Chokhani, director at Enam Holdings, told a local news channel on March 11.
BJP ASCENDANT Modi's party has made substantial inroads across India since the beginning of last year. The BJP and its allies now have around half of the country's 31 local assemblies -- 29 states and two union territories -- under their control, up from 11 assemblies in January 2016.
The BJP has a long affiliation with Hindu nationalist movements, but the latest state elections cut across class and religious lines, upending the entrenched bloc-voting patterns that had been key to party mobilization of supporters in previous polls.
"Young Muslims also voted for us," Ravi Shankar Prasad, the Minister of Electronics and Information Technology and a senior BJP official, said on March 11. "It is a tectonic shift in [the] politics of India."
In a news conference on the same day, Kumari Mayawati, leader of the opposition Bahujan Samaj Party, characterized the BJP's triumph in Muslim parts of Uttar Pradesh as "a shocking result" and mentioned the possibility of interference with the vote count in the state.
Sanjay Kumar, director of the Centre for the Study of Developing Societies, a Delhi-based political think tank, told the Nikkei Asian Review that the government "will try and push their agenda in a more aggressive way" following the Uttar Pradesh victory.
FURTHER GAINS The election result will ease the passage of central government bills in New Delhi thanks to the composition of the upper house, where the BJP currently holds just 23% of all seats. Known as the Council of States, its members are nearly all appointed by state legislatures. The Uttar Pradesh parliament nominates 13% of the upper house's total members, which will allow the BJP to substantially increase its upper house seats in the coming years.
While the BJP commands a bare majority in the lower house, buttressed by its coalition partners, its weaker position in the Council of States has undermined the government's reform program since it was elected in 2014.
At the top of Modi's reform agenda is the introduction of a goods and services tax, for which further cooperation from the states is crucial, followed by infrastructure development projects across several states.
As with other elements of the BJP's economic platform, the GST has been sold as part of the government's "One India" initiative to improve the country's business environment. Following on from budget reform and a crackdown on the so-called black economy, the GST would streamline India's myriad indirect taxes, which vary considerably across state lines and have been a hindrance to foreign investors.
With the ruling party in a commanding position, India's cumbersome democratic system will no longer be an excuse for lagging economic growth. Business leaders and the Indian National Congress, the former ruling party, previously cited the vagaries of politics in the world's largest democracy as an excuse for stalled reforms and India's modest growth rates in comparison with China.
The Congress party, which arose from the dynasty formed by Indian independence icons Mahatma Gandhi and Jawaharlal Nehru, has been weakened considerably by its loss in the northeastern state of Assam last May and its most recent rout in Uttarakhand. While enjoying a slight lead over the BJP in terms of seats in the Council of States, it now seems all but certain to lose ground to the ruling party in the coming years.
The deferral by the Congress party of necessary economic reforms and its numerous electoral defeats since will bolster Modi's determination to push through the government's ambitious agenda. A land acquisition bill scuttled by the Council of States may return, while new life will be breathed into the "Make in India" manufacturing sector initiative, which has yet to produce the forecast employment opportunities.
India's economy has not yet made a full recovery from the shock of last year's demonetization move. Analysts in New Delhi and Mumbai speculate that the Central Statistics Office applied "heavy makeup" to its report on economic growth to deliver a figure of 7% for the final quarter of 2016. To maintain his popularity through the general elections slated for 2019, Modi will need to secure high, sustained growth for the country. Particularly important will be delivering greater employment and higher incomes to reward those voters who supported him and his party despite the temporary pain brought on by demonetization.