India Sets Date for Polls Seen as Referendum on Modi’s Note Ban

  • Results could boost or hit Modi’s momentum ahead of 2019 vote
  • Country’s most populous state heads to polls from Feb. 11

Indians Said to Deposit 97% of Banned Rupees

India’s Election Commission announced poll dates for five states -- including Uttar Pradesh, a politically crucial election that will gauge the popularity of Prime Minister Narendra Modi in the wake of his disruptive cash ban move.

Uttar Pradesh, a bellwether state of 200 million people that sends more representatives to India’s upper house than any other region, will vote in seven phases between Feb. 11 and March 8, chief election commissioner Nasim Zaidi said Wednesday. Punjab -- an agricultural state of about 27 million people -- will go to the polls on Feb. 4 while three other states will also vote in this phase. All results will be announced March 11.

The raft of state polls will be the first political test following Modi’s overnight move on Nov. 8. to outlaw higher denomination bank notes and invalidate 86 percent of India’s circulated currency. The anti-corruption measure has dented economic growth and forced millions into lengthy bank queues, although it remains broadly popular. 

“The upcoming elections in five Indian states in early 2017 will be a key litmus test for the popularity of Modi and the BJP, particularly following the highly contentious demonetization program," said Rajiv Biswas, Asia-Pacific chief economist at IHS Global Insight. "If the BJP is unable to win the UP state election, this will be a very ominous portent for the BJP."

The fierce campaigning -- already underway with Modi recently addressing a huge rally in Uttar Pradesh -- is likely to distract the ruling Bharatiya Janata Party from further reform efforts, said Capital Economics’ analyst Shilan Shah in a Jan. 3 research note. The election results could also affect Modi’s broader political momentum as he seeks a stronger position in the parliament’s upper house, or Rajya Sabha, ahead of the next general election in 2019.

A good showing in Uttar Pradesh is vital for the BJP, which currently has a majority in India’s lower house of parliament. The state, which has the biggest legislature, sends more representatives than any other to the upper house -- where Modi’s party does not have a majority, leading to stalled reform efforts.

Modi’s move to eradicate 500 ($7.3) and 1,000 rupee notes has resonated well with the masses despite the government’s “disastrous transition management,” said Jan Zalewski, a Singapore-based Asia analyst with Verisk Maplecroft. It is also likely to damage the campaign spending of the BJP’s political rivals, he said.

However, Zalewski said the results in Uttar Pradesh are unlikely to have much effect on the vote in 2019. He noted the BJP did poorly in the 2012 legislative elections but won the vast majority of the state’s seats in the general election of 2014. 

Other smaller states will also choose their state governments in the current phase of polls. Uttarakhand will vote on Feb. 15, Manipur will vote in two phases starting on March 4 and Goa will vote on Feb 4.

Raghbendra Jha, an economics professor at Australian National University, also stressed that "local elections are often contested on local issues," and state results may not tell observers much about the national poll in 2019.

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