New Delhi: The Congress party’s loss in Gujarat, its fourth regional defeat this year, may prompt the government to cut taxes and raise subsidies as it seeks to regain popularity before national elections, analysts said.

Congress president Sonia Gandhi was seeking to oust the Bharatiya Janata Party (BJP) in Gujarat, the scene of riots in 2002 that led to the deaths of about 2,000 people, mostly Muslims. The BJP, the main Opposition party, won almost two-thirds of Gujarat’s 182-member assembly.

Losing to Gujarat chief minister Narendra Modi, whose state helped drive India’s record economic growth, may prompt populist measures from the Congress-led government in next year’s Union Budget, analysts said.

Good times: Supporters in Bangalore offer sweets to a party worker wearing a Narendra Modi mask during a rally to celebrate the party’s Gujarat win. The Congress had pinned its hopes on a win in the state to strengthen its influence over coalition allies opposed to some of its policies.

National elections are due in 2009 and Congress wanted to win Gujarat to strengthen its influence over coalition allies who have opposed fuel price increases, the sale of state companies and a civilian nuclear agreement with the US.

“It was a contest of personalities, Mrs. Gandhi versus Mr. Modi," said D.H. Pai Panandiker, president of RPG Foundation, an economic policy group based in New Delhi. “Losing to Modi will dent Sonia Gandhi’s image at the national level. They will try to regain ground by announcing economic measures."

BJP won 117 seats in the assembly, the Election Commission said on its website. Congress took 59 seats, with minor parties securing the remaining six.

The victory was a result of development in Gujarat under Modi, BJP president Rajnath Singh said on Sunday. Modi has tried to make Gujarat a model state, he added.

“The people of Gujarat have cast a positive vote," Modi said in Ahmedabad after the results were announced. “I am grateful to the people. Gujarat wants to move forward."

Gujarat hosts the world’s third largest oil refinery, owned by Reliance Industries Ltd, and is home to 5% of India’s 1.1 billion people. It accounts for 21% of the nation’s exports and 13% of its factory output, according to Gujarat’s Industrial Extension Bureau.

Reliance is spending $6.1 billion (Rs24,156 crore) to expand the refinery to make it the world’s largest.

Modi’s win was “remarkable", PTI cited Congress spokesman Abhishek Singhvi as saying after the party conceded defeat. Still, the result doesn’t remove the “blot" of what happened in 2002, he said.

In February 2002, 59 Hindu pilgrims were killed by a fire in a train coach in Godhra, Gujarat. The incident led to violence in which almost 2,000 people were killed. Modi was accused by human rights groups and opposition parties of failing to protect Muslims, forcing many to abandon their homes and seek shelter in relief camps.

The Gujarat vote was the sixth regional election this year. Congress was ousted in Punjab and Uttarakhand, and fell further behind in Uttar Pradesh. It retained power in Goa and Manipur.

India must cut “mounting" subsidies, Prime Minister Manmohan Singh had said on 8 November. Food, fertilizer and oil subsidies will reach Rs1 trillion this year, he said, reiterating the need to “restructure" them.

Reducing subsidies is unpopular in the country, where the World Bank estimates more than half of the nation’s 1.1 billion people live on less than $2 a day. India hasn’t raised fuel prices this year even as crude oil costs surged 53% because of concern it will stoke inflation and alienate voters.

Keeping fuel prices at their current level will have cost the government an additional $12 billion in subsidies in the two years ending 31 March, equal to almost a 10th of the country’s annual budget.