Event

With barely less than a quarter of the seats, Modi’s BJP Party (within the NDA alliance) has been heavily defeated by a large regional coalition in the election in Bihar, a rural state that is one of India’s poorest and most populated.

Impact on country risk

Since his symbolic defeat in the Delhi local elections last February, the latest poll outcome is a blow for PM Modi, as he has personally been much involved in the campaign and Bihar was considered a major election. The Modi mania seems to have come to an end, while political results are slow in coming after 18 months in power. As well as his popularity being affected, his reform mandate has been a major victim. While he enjoys a strong majority in the lower house of the Indian Parliament, Mr Modi’s core political problem lies in the BJP’s minority position in the upper house, which prevents him from moving forward with essential reforms. Therefore, without improving his position in the upper house, three of his most important reforms, namely the introduction of the new goods and services tax bill and the amended land acquisition and labour laws, are likely to be further postponed. Many BJP members have criticised Mr Modi for polarising communal and social issues and for focusing on himself instead of a local leader. Hence, he could be compelled to change his strategy and open dialogue with the opposition in other upcoming major state elections. Moderating BJP’s Hindu nationalism, particularly among its extremist faction, would also be much recommended, as shown by rising public protests against intolerance. Besides his popularity, his own economic programme is at stake. After the Bihar defeat, in order to show investors he is maintaining control of his economic agenda, Mr Modi announced pro-investment measures, notably higher caps on FDI in various sectors, which may support India’s positive growth forecasts in the coming years.

Analyst: Raphaël Cecchi, r.cecchi@credendogroup.com