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India: On the road in Uttar Pradesh: Modi’s BJP set to win key election

Overview

Our impression following a five-day road trip in eastern Uttar Pradesh, where polling in a month-long election culminates today, was that Prime Minister Narendra Modi’s Bharatiya Janata Party has a clear lead over its regional rivals. The political stakes are high for Modi, as he is the party’s face for the campaign in this politically key state and is seeking to reaffirm his popularity after the controversial notes ban late last year, from which the economy is still recovering.

Key judgments

  • We believe that Modi’s party can win a majority in Uttar Pradesh; however, the local betting markets are predicting 180-200 seats for the BJP, which would make it the largest single party but would mean it falls short of a majority in the 403-seat assembly.
  • Modi’s pro-development image and nationalist, pro-poor rhetoric spun around the demonetization drive seem to have ameliorated the impact of the caste and religious lines on which the state has traditionally voted; he remains very popular, even as the negative effects of the notes ban continue to ripple through the economy.
  • The markets will view a victory for Modi’s party as positive – regardless of whether it is the majority winner or falls short of that outcome while still being able to form the government – as investors will buy the story of a strong leader who has the ability to enact reform; an electoral defeat will be negative for markets as it will raise concerns about Modi’s chances of returning to power as Prime Minister two years from now.

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