When voters in the northern province of Uttar Pradesh delivered Prime Minister Narendra Modi’s party a landslide victory in elections to the state assembly, he cemented his place as India’s most powerful leader in two generations. With every major competitor confused, defeated or in decline, there’s simply no national alternative in sight to Modi or his Bharatiya Janata Party. Oddly, however, this also means we are less certain than ever about what sort of leader he will be, and where he will steer India’s economy.
Uttar Pradesh -- almost always called “UP” -- dominated Indian politics for decades, sending successive prime ministers to New Delhi and serving as a bulwark of support for the Indian National Congress in the years when India was effectively a single-party democracy. It’s huge, almost unmanageably so: Over 200 million people live in UP, many of them among the poorest in the world.
Numerically, the state has more of an influence on national electoral politics in India than California does on the U.S., with 80 seats in the lower house of Parliament. However, after the decline of the Congress, UP became almost irrelevant in New Delhi, as various regional parties dominated the state’s politics. Not till Modi swept to power in 2014, winning a startling 73 of UP’s 80 seats, did the state recover its former influence. UP’s voters -- especially the young, underemployed and disconnected -- voted for jobs, pride and Modi.
Before the elections, observers had speculated that the 2014 “Modi wave” had broken. While he remained personally popular, politics seemed to have returned to business-as-usual; the BJP had suffered devastating defeats in some high-profile state elections -- including in UP’s neighbour, Bihar. After stories of distress began to trickle in from rural India following Modi’s controversial decision to withdraw 86 per cent of currency from circulation in November, the party's electoral prospects seemed dim.
In fact, far from hurting Modi’s stature, demonetisation added to it; voters believed the move hurt the corrupt rich much more than it did anyone else. Modi acquired the aura of a man who took brave decisions to help the poor at the expense of the powerful. The BJP didn’t even bother to put up a candidate for chief minister, relying purely on Modi’s charisma. In the end, his party won more than 300 seats in UP's 400-member assembly.
Modi is now unchallenged as a national leader. If he chooses to implement the structural reforms that India badly needs to increase its competitiveness and create the jobs his voters long for, no opposition party has the political wherewithal to stand in his way. He has more than enough state governments under his control to bend India’s federal structure to his will. His state governments could pass long-delayed reforms -- such as to agricultural markets -- which the central government can't. That would be the Modi that many hoped and imagined they were getting in 2014.
But the Modi of 2017 is also a different sort of leader than he once seemed. Rural India has suffered through two droughts since 2014. And stung by allegations that he was running a “suit-boot” government -- one too cozy with big business -- Modi has turned sharply to the left. Analysts declaring that Modi’s dominance means that a new era of reform is inevitable are being a trifle overconfident. Demonetisation was sold as a defence of the honest poor against the corrupt rich; it was accompanied by a bouquet of new welfare schemes. One other Modi welfare initiative -- natural gas connections for rural India’s kitchens -- may have been a crucial contributor to his UP victory.
Ironically, perhaps, if Modi now dominates north India like the Congress once did in its heyday, that’s because he’s created an image for himself that’s a lot like the one Congress leaders such as Indira and Rajiv Gandhi claimed back then: as a man above the fray, a repository of national pride, an incorruptible defender of the poor. India’s history suggests that being thought of that way can tempt a leader. It can lure policymakers into statism, welfarism and something perilously close to autocracy.
Much depends on how Modi himself chooses to read this result. If he sees it as a reward for demonetisation and his gestures towards class warfare, then economic reform may slow down or even reverse. And certainly, it’s tough to interpret it as a sign that India’s voters are eager for economic reform. But if he sees the verdict as an expression of faith -- and a reminder that he has yet to deliver on his promises of prosperity -- then there’s a chance that the India story may yet take a turn for the better. - Bloomberg View