Prime Minister Narendra Modi’s honeymoon with India’s voters is officially over.

Delhi residents delivered his Bharatiya Janata Party a crushing defeat in a state election just nine months after helping sweep him to national power with the biggest mandate in 30 years.

While it has little effect on his ability to push key bills through parliament, the sweeping loss emboldens Modi’s opponents and puts pressure on him to deliver.

“It will shake the government up and may prompt them to quickly implement policies that were promised,” said Jyotinder Kaur, an economist at HDFC Bank based near New Delhi. “A little bit of soul searching is good for everybody.”

Modi’s earliest chance to regain political momentum will be in a parliamentary session later this month, when his government unveils its first full-year fiscal budget.

Economists including central bank Governor Raghuram Rajan are looking for him to shift spending from subsidies to investments that create supply and ease one of Asia’s fastest inflation rates.

While oil’s decline has slowed price gains in India, Delhi’s election showed that bread-and-butter issues still matter at the ballot box. The Aam Aadmi Party won 67 of 70 seats in Delhi on Tuesday after a campaign in which its leader, Arvind Kejriwal, promised cheap electricity, water and medicine.

“This is the people’s victory and it’s a victory for honesty,” Kejriwal told thousands of cheering supporters on Tuesday, adding that the huge mandate surprised him. In a message on Twitter, Modi congratulated Kejriwal and assured him of “complete support in the development of Delhi.”

The benchmark S&P BSE Sensex index, which has been the world’s third-best performer over the past 12 months, slid 1.7 percent on Monday after exit polls showed Modi’s party losing the vote. It has gained about 1 percent since then. The rupee has declined about 0.7 percent this week.

The victory margin surprised everyone. Exit polls predicted a win for Aam Aadmi, but not a landslide. In a Delhi election 14 months ago, Modi’s BJP won 31 seats while Aam Aadmi took 28, producing a hung assembly. His party went on to win a majority in the national parliament for the first time since 1984 and made gains in four subsequent state elections.

In that time, consumer-price inflation eased to about 5 percent while the economy showed signs of accelerating after a slump.

India on Monday forecast that its expansion in the 12 months through March 31 would reach 7.4 percent under a revised method for calculating gross domestic product — a pace that would match China’s in 2014.

The reason financial investors aren’t too worried is simple: Modi still has a majority in the lower house of parliament and Delhi doesn’t contribute much to the opposition-controlled upper house, where state elections determine seats.

Still, the next few months might be Modi’s best chance to push through unpopular moves. So far most of what he’s done has cost little political capital: scrapping diesel subsidies when oil prices were low and pressing ahead with measures proposed by the previous government, such as allowing more foreign investment in insurance and passing a national sales tax.

Doing more to curtail spending on food and fuel subsidies will become harder as time goes by. Bihar, a state with more sway in the upper house, will have an election later this year. Five other states hold elections in 2016.

“The prime minister is very clear that these measures, like subsidy reduction, could be bitter in the short term,” N.R. Bhanumurthy, an economist with the National Institute of Public Finance and Policy, a government-backed research group.

“But it has a very, very positive effect on employment and growth in the long term, which is most crucial for electorate.”

On the plus side for Modi, Aam Aadmi will find it hard to replicate its success beyond Delhi. The two-year-old organization led by anti-graft campaigner Kejriwal is largely confined to the capital and Punjab state in northern India.

Congress, the biggest national opposition party, didn’t win a single seat in Delhi’s election about a year after holding power in the state. It was the latest sign that the party controlled by the Gandhi dynasty which has ruled India for two- thirds of its history is shifting toward irrelevance.

Moreover, Aam Aadmi mostly took votes from Congress. While Aam Aadmi’s vote share rose to 54 percent from 30 percent in December 2013, the BJP’s fell slightly to 32 percent from 33 percent. Congress’s plummeted to 10 percent from 25 percent.

That didn’t stop some of Modi’s detractors from gloating. Mamata Banerjee, who runs the state of West Bengal, said on Twitter it was a “big defeat for the arrogant.” Even the head of BJP ally Shiv Sena called it a verdict against the federal government, India Today reported.

Modi in any case is getting right back to work with a cabinet meeting scheduled for Tuesday night. Implementation will be the key to his success, according to Manjeet Kripalani, executive director of Mumbai-based policy group Gateway House, who advised an Aam Aadmi candidate last year.

“The BJP took its eye off the ball in Delhi,” she said. “This election has shown that what the BJP needs to do is focus on the bottom level where peoples’ lives every day are being harassed by petty corruption, non-governance, non-functional municipal corporations.”

Bloomberg

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Source: The Jakarta Globe