Bihar election results: On reforms front, Narendra Modi's life likely to get a lot tougher

The Bihar poll outcome is sure to make life tougher for Modi in Parliament to push ahead his reform agenda. That’s where precisely Modi's challenge lies

Dinesh Unnikrishnan November 09, 2015 07:18:56 IST
Bihar election results: On reforms front, Narendra Modi's life likely to get a lot tougher

For the Narendra Modi government, the defeat in Bihar elections should act as an eye-opener. Besides the Bihar-specific factors, the Bihar mandate was perceived to also partly reflect the development work the NDA government has carried out in its 17-months rule.

The poll outcome questions the dominance of Modi and BJP and, undoubtedly, puts more pressure on the NDA government to focus on governance and development agenda in the next three-and-a-half years.

Investors and economy watchers would have been happier with a BJP victory in Bihar since the BJP has to improve its strength in the Upper House, where its weak position has created major roadblocks for Modi to get some of the critical reforms push ahead.

Bihar election results On reforms front Narendra Modis life likely to get a lot tougher

PM Narendra Modi. PTI

While even a victory would not have changed the numbers in Rajya Sabha in a meaningful manner, it could have certainly given room for the Modi government to get more credibility to put more push the reform process with a renewed vigour. Post Bihar, that advantage is clearly lost for Modi. This is something economists and political analysts had pointed out.

The decisive victory of grand alliance in Bihar could act as a major turn off for the investors, who are eagerly looking at the continuity of the reform process under the Modi government.

Clearly, Bihar was the first major test for the BJP leadership in the Hindi-heartland after the May, 2014 Lok Sabha election. Despite Modi’s Rs 1.65 lakh crore package for the state announced in August this year and despite Modi and Amit Shah spending a lot of time to the poll campaign, it turned out to be a lost battle. The BJP’s failure to effectively address the ‘intolerance’ wave too has played out in the Bihar defeat.

Modi should accept the defeat and move on to focus on the NDA's development agenda. True, confronting a rejuvenated opposition will be even more difficult for Modi in Parliament as the Winter Session is set to begin later this month.

The reform process is still a job half done for Modi, especially on crucial issues such as GST, labor law reforms and making the environment more conducive for foreign investors.

The Modi government, which staged a landslide victory in the May 2014 Lok Sabha elections, has indeed managed to put the economy back on the reform track after a prolonged period of so-called policy paralysis during the UPA regime, but has failed to make progress on large-ticket reforms such as land acquisition on account of lack of strength in the Upper House.

"Bihar polls are important politically as they are the first test of the ruling BJP in the Hindi heartland after the May 2014 general elections," said economists at Bank of America Merrill Lynch in a report dated 4 November.

"While Bihar polls will not impact national politics as PM Modi commands a majority in the Lok Sabha, they will influence the market’s perception of reforms," said they in a report.

Eye on reforms

Modi’s reform plan so far has focused on several small incremental steps, many of which have made notable progress.

The government’s push on the financial inclusion front, creation of a social security network, roll-out of direct benefit transfer and overhauling the financial sector structure, have been seen as critical steps in the overall reform progress.

The challenge for Modi is to take the process forward amid ongoing disruptions.

In a recent report, Moody’s Analytics had warned that Modi will have to focus on the reform process keeping his party members under check (referring the inflammatory comments by BJP leaders on sensitive issues).

The NDA government's very ability to push critical reforms in the economy could also suffer (if) the debate turns away from economic policy in Parliament, the agency said.

"Back to the fore will be the need to push key reforms, mainly concerning the factors of production – namely land acquisition, labour reforms and improving the business climate," said Radhika Rao, economist at Singapore based DBS Bank.

"Attracting investments is also a priority through simpler foreign direct investment regime and iron out contentious issues regarding the public-private partnerships. Latter is particularly important for the infrastructure sector, especially roads and highways where many projects are stalled due to a combination of financing crunch, cost over-runs and tepid private sector participation," Rao said.

On Friday, speaking at the Delhi Economics Conclave, Modi said India's economy looks much better now compared with the time he took over the office from UPA last year. "By almost every major economic indicator, India is doing much better, than we took office 17 months ago," Modi said. Modi cited an improving GDP growth, low inflation, pick up in foreign investments, healthy fiscal deficit and lower interest rates.

Certainly, the economy looks in a much better shape than the UPA-days. While the NDA-government can certainly claim its due credit for pushing several development-oriented reforms, it should also thank the lower crude and commodity oil prices, which have helped to ease a significant part of the burden on India’s import bill and inflation worries.

Also, the improvement in GDP growth is yet to reflect on corporate performance, bank credit growth and the stressed asset situation in the sector.

The bottomline: The Bihar poll outcome is sure to make life tougher for Modi in Parliament to push ahead his reform agenda. That’s where precisely Modi's challenge lies.

The voices raising doubts over Modi government’s ability to stay course on the reform-plans are likely to turn intense post Bihar. The task for Modi is to restore the investor confidence.

(With inputs from Kishor Kadam)

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