India’s Economic Powerhouse Seeks Stability in State Elections

(Bloomberg) -- India’s western state of Maharashtra holds local elections Wednesday, a vote that not only tests the support for Prime Narendra Modi and his party but that could have far-reaching consequences for a region that drives the nation’s economy. 

About 96.4 million registered voters in the state — home of the country’s financial capital Mumbai — will head to the polls to elect candidates for 288 seats in the local assembly. In the last five years, the state has lurched from one political crisis to another, and is in a desperate need of a stable government, according to analysts. Since 2022, Modi’s Bharatiya Janata Party has run a coalition government in Maharashtra, with a breakaway faction of its one-time ally Shiv Sena.

Maharashtra contributes over 10% of India’s gross domestic product, with Mumbai home to companies such as Reliance Industries Ltd. and Tata Group, the country’s two main stock markets, and the Hindi film industry. The state’s lofty economic reputation, however, is at risk of being tarnished by growing farm distress and high unemployment. 

Investors look at the state to frame their views on the overall health of the world’s fastest-growing major economy, and are hoping for a strong and stable government to recharge the state’s financial and economic prospects. In recent years, Maharashtra has seen numerous legislators switch allegiances, leading to political turmoil.

“There is a clear preference among the big businessmen. They would prefer a continuity of the government,” said Sanjay Kumar, professor at the Centre for the Study of Developing Societies, a Delhi-based think tank. 

It’s expected be a close race, though. The BJP-led alliance ‘Mahayuti’ is facing a resurgent opposition — headed by the Indian National Congress — which has hammered the incumbent on issues ranging from crony capitalism to lost investment contracts. 

For Modi, a win in Maharashtra will strengthen his hold on the nation after his party pulled off a surprise victory in the northern state of Haryana last month. Given the setback in national polls earlier this year, Modi needs another win to shore up the support of his coalition partners and to dispel any indications of political weakness.

Kumar said that it’s going to be a “tight election” as voters are going to focus more on candidates in each district, instead of political parties, which is usually the norm in Indian state polls.

Results will be announced on Saturday alongside the outcome of local elections in the eastern Indian state of Jharkhand.

Businesses Worried 

Investors are nervous, with traders bearish on stocks linked to Modi’s economic policy agenda. There are concerns that one of the country’s most ambitious development projects would be scrapped if Modi’s party loses. 

Billionaire Gautam Adani aims to revamp one of Asia’s biggest slums, but his $3 billion plan to convert 620 acres (251 hectares) of Dharavi into a glitzy urban hub has become a political hot potato. The opposition party has repeatedly vowed to scrap the project if voted to power in the upcoming elections, accusing the government of favoring a handful of businessmen for key projects. 

“We accept that there are big businesses in India but we will not accept that they are the only ones who will have the seat at the table,” Rahul Gandhi, a top leader in the Congress party, said at a press conference Monday. 

The Adani Group has announced other major projects in the state, including plans to build a $10 billion semiconductor fabrication plant with an Israeli partner. 

While the state is the largest recipient of foreign direct investment and local industrial investment in India, critics say the majority of development has been focused on cities such as Mumbai and Pune, while large parts of rural Maharashtra suffer from problems ranging from a lack of jobs to severe water shortages.

Crucial Test

The BJP, which has governed Maharashtra for the larger part of the last decade, performed poorly in the state in the general election earlier this year. A win this week would reassure the party that it “still maintains relatively healthy levels of support,” wrote Capital Economics in a note this month. “That would probably reduce the chances of a shift toward populist policymaking at the national level,” it added. 

At the moment, both alliances are relying heavily on cash handouts to win votes, much to the alarm of investors. 

The current state government is doling out 1,500 rupees ($17.77) per month to approximately 25 million women across the state. The Congress party has promised to double that if voted to power.

“It is not at all good for a country’s economy. Now it has become a competition among political parties,” said Kumar.

For the opposition, a win in Maharashtra would mean that their strategy of forming an alliance with different partners is working. In the national polls, more than 20 different parties had worked together, shedding ideological differences and pooling resources, to take on Modi’s electoral prowess. 

“We are in a phase of Indian politics where our thinking is being reshaped,”said Neelanjan Sircar, an associate professor at Ahmedabad University, adding that Modi’s influence on state polls could be waning.

More stories like this are available on bloomberg.com

©2024 Bloomberg L.P.