Modi Battles in Delhi to Avoid First India Election Setback

Eight months ago, Delhi voters helped propel Indian Prime Minister Narendra Modi to national power. On Saturday they may give him his first setback at the ballot box since he took office last May.

Opinion polls show Modi’s Bharatiya Janata Party in a tight race with an anti-corruption party that it topped by three seats in the last Delhi election in December 2013. A loss when votes are counted on Feb. 10 may prompt him to hold back on unpopular economic policy changes when his government unveils its first full-year budget later this month.

“If Modi loses the Delhi election, his authority will weaken,” said Ajoy Bose, an author who has written about Indian politics for four decades. “As the opposition will be united, Modi will face difficulties in pushing his legislative agenda in parliament and other initiatives.”

Modi has been nearly unbeatable since winning the biggest Indian election mandate in 30 years. His BJP has come first in three of four state elections, which are crucial to overcoming opposition in parliament’s upper house and passing bills to allow more foreign investment and ease land clearances.

While on paper Delhi has little say in national affairs -- accounting for about 1 percent of all parliamentary seats -- its position at the heart of Indian power gives it outsized importance. Modi took out full-page advertisements on the covers of several major newspapers in Delhi on Friday in a last-minute effort to sway voters.

The state is roughly the size of Hong Kong with more than twice as many people. Despite a plethora of tree-lined boulevards and parks filled with centuries-old monuments, gridlocked streets give it the world’s most toxic air.

‘Slight Negative’

A loss would be a “slight negative” for the BJP and provide an excuse for investors to sell stocks over the next couple of months, according to Bank of America Merrill Lynch.

“We think the market would be concerned whether the election result is a local issue (as state elections generally are) or whether it indicates some loss of popularity for the ruling BJP,” analysts Jyotivardhan Jaipuria and Anand Kumar wrote in a Feb. 4 report.

India’s benchmark stock index has gained 42 percent over the past 12 months, the second best performer in the world in that time after Shanghai, according to data compiled by Bloomberg. The rupee is the second-best gainer among Asian currencies in that time.

Of six opinion polls published this week in local newspapers, three said the victor would be the two-year-old Aam Aadmi Party, which is known as AAP and translates to “Common Man.” Three others showed Modi’s BJP winning the most seats.

49 Days

AAP’s leader, Arvind Kejriwal, ran Delhi for 49 days before resigning when the assembly rejected an anti-corruption bill. The capital was then put under federal rule.

In a rally on Monday, the anti-corruption campaigner who once described himself as an “anarchist” accused Modi of failing to deliver on promises to cut prices of electricity, vegetables and medicines. Kejriwal, 46, also apologized for stepping down and vowed to serve his full five-year term.

“We made a mistake quitting government,” Kejriwal, clad in a red sweater and beige trousers, told a crowd of about 2,000 people in Delhi. “But we didn’t commit any offense, indulge in corruption or waste money.”

Modi is taking the threat seriously. He has given regular campaign speeches and appointed Kiran Bedi, a former police officer who along with Kejriwal was part of an anti-corruption movement, as the BJP’s chief minister candidate -- something Modi avoided in other state elections.

“Delhi needs opportunity, change and development to become like capitals in other countries,” Modi said at a campaign rally on Tuesday, promising more electricity, roof-top solar panels, slum development and jobs.

Towing Cars

Bedi, 65, told the same rally that she’s the best candidate to make the city secure for woman. She joined the Indian Police Service in 1972 to become the country’s first highest women ranking officer, earning the nickname of “Crane Bedi” for regularly using cranes to tow away illegally parked cars.

Voters are already starting to question whether Modi has improved their lives, showing that political momentum in India can be fleeting. Sumitra Goyal, 44, said she plans to vote for AAP even though she supported Modi’s BJP last year.

“What has the BJP and Modi done for us?” Goyal said in West Delhi this week, citing higher vegetable prices and her failure to receive government-backed insurance funds after opening a new bank account. “My family won’t vote for them.”

Anti-Incumbency Factor

In campaign rallies, Modi has touted the bank account program as one of his main achievements. Under the policy, those considered poor are entitled to insurance cover of 100,000 rupees ($1,620) when they open a bank account.

Since taking charge in May, Modi has scrapped subsidies on diesel fuel, allowed more foreign direct investment in sectors including defense and railways and begun a program to open bank accounts for every household. He has also taken steps to boost food supplies and contain inflation and encouraged foreign companies to shift factories to India.

In the budget, analysts want him to shift more funds away from subsidies toward infrastructure and provide incentives to encourage investment. In the same parliamentary session, Modi’s party will seek to pass bills expanding foreign investment in insurance, making it easier to buy land and make coal mining more transparent.

“It’s most important for Modi to win this election to ensure that he can continue with the development agenda he set up,” said Nilanjan Mukhopadhyay, who has written a biography of Modi and analyzes Indian politics. “This will be the first indication if, eight months down the line, the anti-incumbency factor is beginning to set in against Modi.”

Before it's here, it's on the Bloomberg Terminal.