Modi's Bihar State Setback May Spur Change of Political Tactics

  • Bihar defeat hurts Modi's chances of controlling upper house
  • India opposition has blocked national goods-and-services tax

Wounded by another state election defeat, Indian Prime Minister Narendra Modi might need to shift gears and show his softer side in order to push through his showcase economic reforms.

"Bihar is the nail in the coffin unless they completely change their political identity and behavior," said S.L. Rao, former director-general of the National Council of Applied Economic Research, a policy research group. “Modi and his colleagues have to learn good manners. I don’t know if it’s going to work, but he has to try. He has to bend over backwards and woo the opposition."

That won’t be easy for Modi. As chief minister of Gujarat, one of India’s wealthiest states, Modi dominated local elections and his opponents for more than a decade.

Rashtriya Swayamsevak Sangh called for a review of a caste-based affirmative action program that has benefited many voters. The BJP quickly denounced that call, but the damage was done.

It found itself on the defensive again after a party minister compared the killing of two lower caste children to throwing stones at a dog. The minister later said his comments were misrepresented and that he didn’t draw an analogy.

Mob Lynching

Modi himself Shah stoked Hindu-Muslim tensions further by saying India’s neighboring rival Pakistan would cheer if the BJP lost in Bihar.

Perhaps what hurt Modi the most, however, was a united opposition. The so-called Grand Alliance brought together Congress and two caste-based parties that shared little in common besides a desire to hand Modi another loss after the BJP was defeated in Delhi elections in February.

It paid off big: The bloc won 73 percent of seats in the 243-member state parliament, compared with 24 percent for Modi’s group. India’s benchmark stock index lost as much as 2.3 percent on Monday, while the rupee fell the most in almost three months.

There are some positives in Modi’s corner. India is the world’s fastest growing major economy, foreign investment is rising and the business climate is improving.

Moreover, as Deutsche Bank AG economists Taimur Baig and Kaushik Das wrote on Friday, the Bihar vote involved many local factors that don’t necessarily reflect the national mood. And Modi has about five months before the next batch of state elections that will determine the composition of the upper house.

Modi’s party is meeting on Monday to assess the poll results. He has several options for altering the narrative. He could refocus the party on economic development and away from efforts to ban beef, rewrite history books and harass truckers who transport cattle. He could also look to revamp the BJP leadership or overhaul his cabinet to add people who can push through economic policy changes at a faster pace.

"This verdict will make the central government more determined to push much harder for reforms," said Shishir Bajpai, a director at Mumbai-based IIFL Wealth Management Ltd., which has $12 billion under management and advisory. "That’s the only thing they can now bank upon."

(An earlier version of this story was corrected to fix the date of the Delhi election.)

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