Party fails to get a majority on its own in Maharashtra, falls short by six seats in Haryana
The setback in the assembly elections comes against the backdrop of a rising risk of contagion in the Indian financial sector
New Delhi: Voters unhappy with the prolonged economic slowdown and agrarian distress delivered a wake-up call to the incumbent Bharatiya Janata Party (BJP) on Thursday.
The BJP failed to win a majority on its own in Maharashtra and fell short by six seats in Haryana. While it is set to form the government with alliance partner Shiv Sena in Maharashtra, it will have to scout for a new ally in Haryana.
“At a time when it is rare that state governments return to power, people of Haryana and Maharashtra have yet again given the mandate in favour of BJP. Although both chief ministers Devendra Fadnavis and Manohar Lal Khattar were new, the state government served the people with honesty, and worked for the development of people," Prime Minister Narendra Modi said at the BJP headquarters.
Barely five months after the National Democratic Alliance (NDA) stormed back to power with a thumping majority in the general elections, it was struggling to form the government in Haryana and ceded ground to Sharad Pawar’s Nationalist Congress Party (NCP) in Maharashtra.
The setback in the assembly elections comes against the backdrop of a rising risk of contagion in the Indian financial sector, with rating agency Standard and Poor’s on Wednesday warning it could spread to real estate companies.
For many economists and political pundits, the tea leaves point to the intersection of politics and economic policy as the overriding factor behind the disappointing results for a party that won 303 Lok Sabha seats in May, helping the BJP-led coalition return to power with an even bigger mandate of 353 seats.
The economic backdrop for the assembly elections can be summed up thus: the downturn. Non-bank lenders have seen their source of funds dry up suddenly after a series of defaults by Infrastructure Leasing and Financial Services Ltd, triggering a liquidity crisis. In turn, banks and mutual funds reduced lending to non-banking financial companies and home financiers, creating a liquidity squeeze that has forced the shadow banks to sell assets and cut back on new loans. Most recently, the Reserve Bank of India put a cap on withdrawals by depositors after the discovery of fraud at Punjab and Maharashtra Co-operative Bank.
In addition, the attempt to formalize the Indian economy through the goods and services tax has impeded productivity growth.
Ironically, the results came on a day when the World Bank’s Doing Business report saw India’s rank improving by 14 rungs to 63rd among 190 countries surveyed. As the commercial capital, Mumbai remains key to such efforts.
Politically, anti-incumbency seems to have been a factor with voters unimpressed by the performance of the Devendra Fadnavis- and Manohar Lal Khattar-led governments in Maharashtra and Haryana, respectively.
“The people have decided," said former home minister and Congress leader Sushil Kumar Shinde in a phone interview.
To be sure, the Narendra Modi and Amit Shah-led election machinery will recalibrate its strategy as BJP prepares to face elections in Jharkhand later this year and in Delhi early in 2020.
BJP being the incumbent in Maharashtra, Haryana and Jharkhand, the deepening crisis in the agriculture sector is also weighing on the leadership. Prime Minister Narendra Modi’s second term in office has been clouded by the economic slowdown, tepid job growth and decelerating exports. Asia’s third-largest economy expanded at 5% in the June quarter, its slowest pace in more than six years.
“The public perception is on structural issues, which the government has not identified and addressed," said D.K. Srivastava, chief policy adviser at consulting firm EY. “There is a need to recognize the problem and there is a need for an analysis that why the recovery is delayed. In that sense, there is a degree of urgency."
Despite focusing on sugarcane farmers in Maharashtra and Haryana, among the top cane producing states, through a string of measures to help counter the surplus sugar stock’s impact on prices, the NDA government’ efforts to connect with the politically sensitive constituency didn’t bear the expected results.
“The economic slowdown and agrarian distress have certainly played a role in the elections. That is evident," said Himanshu, associate professor at Jawaharlal Nehru University. “The important lesson to learn is on the ground, the government cannot run away from doing the job—to provide basic services and amenities to the people."
“The reform measures came in too late. Secondly, none of them are creating any improvement in the economy. Tax waiver for corporates is not the way to revive the economy. Not a single measure has been announced for the rural economy," he said.
BJP’s decision to highlight the repeal of Article 370 as a key poll plank has not paid off. The party campaigned about how the Centre scrapped Jammu and Kashmir’s special status and banned the practice of instant triple talaq. This was a recurrent theme in the speeches of Modi and Shah.
Elizabeth Roche and Shreya Nandi contributed to this story.