This Article is From Oct 15, 2014

Elections in Two States Could Unlock PM Narendra Modi's Reform Push

Elections in Two States Could Unlock PM Narendra Modi's Reform Push

FILE: Prime Minister Narendra Modi (Reuters photo)

Mumbai: Maharashtra and Haryana are voting in the first major elections since Prime Minister Narendra Modi stormed to power five months ago, in a test of support that could unlock a round of delayed economic reform.

The BJP, which heads the central government, chose to contest the elections alone in both states for the first time in many years, banking only on 'Brand Modi,' and hopes to win a large number of seats, when results are announced on Sunday.

State elections allot seats to the Rajya Sabha, or upper house of Parliament, where the BJP and its allies do not have a majority. The Rajya Sabha plays a critical role in passing legislation and building the BJP's seat tally there will help push through reform.

"Urging the people of Haryana & Maharashtra to go out & cast their votes. Youngsters must show the way & ensure record turnout," Mr Modi tweeted as polling stations opened this morning.

Apparently with an eye on the elections, Mr Modi's government has put off unpopular decisions on raising the price of natural gas and ending a price cap on diesel. Both measures are expected to be implemented once the elections are out of the way.

Mr Modi's caution so far has disappointed some investors who feel he has moved too slowly on reform despite winning the first parliamentary majority in more than 30 years on the promise of reviving the economy and jobs.

Bagging two more state governments for his party would also make it easier for Mr Modi to move ahead with a much-anticipated national goods and services tax to replace a labyrinth of levies that analysts say restrain the economy.

Analysts expect Mr Modi to tackle the government's land acquisition policy to revive infrastructure investment and introduce the national goods and services tax by 2016, measures for which he will need to earn the support of state governments. Several state elections are due next year.

"Rather than delivering on big bang reforms, Modi's approach as of now has been on repairing the economy through bridging the gaps which were existing," said Upasna Bhardwaj, an economist with ING Vysya Bank in Mumbai. "We should definitely expect Modi's government to have a bigger appetite for bold reforms if they were to acquire a strong hold in the upcoming two state elections."

Despite the relatively muted performance of Mr Modi's government so far, investors still view him positively, as reflected in Mumbai's financial markets.

The Nifty has notched up a record-setting 25 percent gain so far this year, making it the best performer in Asia and more than $30 billion in foreign investments has flowed into India markets so far in 2014.

After a weak showing for the BJP in a round of by-elections last month, Mr Modi hit the stump hard in Maharashtra, home to financial hub Mumbai, and Haryana, where tech-city Gurgaon is located. The party has never been a major force in either state.

The Prime Minister addressed dozens of rallies, railing against the Congress party incumbents in the states and trumpeting achievements such as attracting investment promises from Japan and opening bank accounts for the poor.
© Thomson Reuters 2014
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