A disappointing set of state election results for Prime Minister Modi’s BJP suggests that the ruling national party has lost some goodwill and the risk now is that, in response, fiscal (and potentially even monetary) policy is loosened ahead of the general election when the economy is already running into capacity constraints. That said, we maintain our view that the BJP will secure victory in the general election, which would allow PM Modi to get his reform agenda back on track after a lacklustre 2018.
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