State election results fail to move the needle - Capital Economics
India Economics

State election results fail to move the needle

India Economics Update
Written by Shilan Shah

Results of the state elections that have been taking place over the past couple of months are unlikely to have undermined the BJP’s willingness to implement difficult economic reforms, particularly given its victory in Assam. But at the same time, the inability of the BJP to significantly dent support for regional parties elsewhere, notably in West Bengal, has set back its ability to undertake sweeping measures such as labour market liberalisation at the national level, at least for the time being.

  • Results of the state elections that have been taking place over the past couple of months are unlikely to have undermined the BJP’s willingness to implement difficult economic reforms, particularly given its victory in Assam. But at the same time, the inability of the BJP to significantly dent support for regional parties elsewhere, notably in West Bengal, has set back its ability to undertake sweeping measures such as labour market liberalisation at the national level, at least for the time being.
  • State assembly elections have been taking place in Assam, Kerala, Tamil Nadu, West Bengal and the union territory of Puducherry over the past two months, with results filtering through since yesterday. There are, as always, multiple stories playing out at the local level. Arguably the overarching theme for investors is how Prime Minister Modi’s BJP would fare as it attempts to gain control of the Rajya Sabha (the upper house of parliament). Members of the Rajya Sabha are voted for by state assemblies, and gridlock there has been a constraint on the passage of economic reform for decades. (For more, see our Focus.)
  • It appears to be a disappointing set of results for the BJP. The AIADMK-BJP alliance has been displaced in Tamil Nadu. Meanwhile, the incumbent Left Democratic Front has secured victory in Kerala, with the BJP failing to win a single seat there. Arguably most important, Mamata Banerjee’s Trinamool party (AITC) has comfortably held on to power in West Bengal. (See Chart 1.)
  • While the results are not particularly surprising given that the BJP has never had a strong presence in any of these states, it had run aggressive campaigns – particularly in West Bengal – in the belief that it had a real chance of winning. Those campaigns have been the subject of much local and national criticism amid the surge in virus cases. It’s worth noting that West Bengal’s daily case numbers have risen from about 250 in mid-March to almost 17,000 over the past week.
  • That all being said, there are crumbs of comfort for Prime Minister Modi’s party. The BJP was able to secure victory in Puducherry and retain power in Assam. These two votes were the least important in terms of the impact on the Rajya Sabha. But the Assam result in particular is significant given that it has been one of a handful of states to implement labour reforms, ostensibly in response to the COVID-19 crisis. (See our Update, “Reforms through the back door” 2nd June 2020.) 
  • By holding onto power in Assam, one conclusion for the BJP might be that labour market liberalisation is no longer seen as electorally-unviable.
  • Distilling all of this, the key takeaway is that the state election results probably won’t have dented the willingness of the BJP to implement challenging reforms, but have set back its ability to do so, at least for the time being. It now appears unlikely that the BJP-led National Democratic Alliance will be able to achieve an elusive upper house majority (see Chart 2) until at least late-2022. However, much will depend on the vote that takes place in Uttar Pradesh – India’s most politically important state – in May next year.

Chart 1: West Bengal State Election Result*
(No. of Seats out of 292)

Chart 2: Seats in Rajya Sabha (% of Total)

Source: Election Commission. *Final result subject to change

Source: Election Commission


Shilan Shah, Senior India Economist, shilan.shah@capitaleconomics.com