Kejriwal supporters were also sending a message to the prime minister.

Photographer: Lam Yik Fei

Is the Modi Honeymoon Over?

Dhiraj Nayyar is a journalist in New Delhi. Trained as an economist, he has worked at the Financial Express, India Today and Firstpost.com. He is editor of "Surviving the Storm: India and the Global Financial Crisis."
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In elections over the weekend, Delhi voters left no doubt about whom they prefer to govern India's capital region. Official results released Tuesday showed that the Aam Aadmi ("Common Man") Party led by populist anti-corruption campaigner Arvind Kejriwal had swept 67 of the 70 seats in the local legislature -- a record -- and cornered over 50 percent of the vote, a rarity in India’s multi-party, first-past-the-post system. Voters were clearly sending a message. The question is to whom.

Strategists from Narendra Modi's Bharatiya Janata Party -- which swept to power nationally in its own landslide last May -- have been quick to insist that the debacle doesn't represent a referendum on the prime minister's nine months in power. And it's true the election was dominated by issues and personalities specific to Delhi. The BJP's local leadership has traditionally been weak; it's failed to win the legislature since 1998.

Yet Modi is unquestionably the face of the party and has been only too happy to take credit for its recent slew of victories in other state elections. He handpicked the BJP's candidate for Delhi chief minister -- Kiran Bedi, another well-known campaigner against corruption -- and repeatedly asserted that the capital's voters reflected the national mood. The BJP's campaign slogan exhorted voters to "walk with Modi."

In the last local elections in December 2013, the BJP won 31 seats in the legislature. In May 2014, Modi helped the party to sweep all seven of Delhi's national parliamentary seats. The scale of the BJP's reversal is stunning: Voters have unquestionably grown impatient waiting for the "achche din" ("good days") Modi promised them.

The prime minister may regret having raised expectations so high with his candidacy. He promised new jobs, revived growth, lower inflation and an end to corruption and cronyism. His record on all fronts has been patchy. The economy, despite buoyant new GDP growth figures ginned up by a revised methodology, is only beginning to sputter back to life. The plunge in global oil and commodity prices has caused inflation to ease and put the economy on a sounder footing. But in the absence of dramatic reforms, investment -- particularly private investment, which is key to sparking growth -- has not been forthcoming.

Meanwhile, the public investment needed to kickstart infrastructure projects has been constrained by India's large fiscal deficit. Even the limited reform measures Modi has introduced -- on land laws and increased foreign investment in the insurance sector -- have been blocked in the upper house of parliament, which the BJP does not control. Modi's strategy of ramming through reforms using executive ordinances has created doubts among investors about how lasting the measures are.

Modi's personal record on corruption is impeccable, and no scandal has rocked his government so far. Still, the prime minister hasn't been able to shake off perceptions of cronyism. A proposed loan of $1 billion from the government-owned State Bank of India to Gautam Adani, a prominent industrialist from Modi’s home state of Gujarat, created a perception problem, even if it was aboveboard. Modi’s aloofness from the mainstream media has been puzzling. It certainly hasn't helped his cause.

In the end, voters judge politicians on the promises they make. Among other things, Modi vowed to bring back the illicit wealth accumulated by wealthy Indians in foreign bank accounts and to deposit 1.5 million rupees into the bank account of each Indian family using the proceeds. During the Delhi campaign, BJP President Amit Shah claimed that had been a rhetorical pledge. For voters, it was a broken promise.

The lessons for Modi should be obvious: He needs to live up to his pledges of radical changes to India's economy and investment climate, and fast. The first test will come at the end of this month when his government presents its first full budget. If he doesn't introduce bold reforms then, his political capital will likely begin to seep away.

There's a lesson for the popular Kejriwal as well. He's promised Delhiites many things, including subsidized power and water. As Chief Minister, he'll have a very hard time fulfilling those pledges without busting the budget. And as Modi has discovered to his chagrin, Indian voters are unlikely to be forgiving.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Dhiraj Nayyar at dhiraj.nayyar@gmail.com

To contact the editor on this story:
Nisid Hajari at nhajari@bloomberg.net