- West Bengal was this year's largest state election: BJP seats grew but not by enough to dethrone the local incumbent
- State legislatures elect upper house of federal parliament: BJP bloc has 49%
- West Bengal is a setback relative to BJP ambitions prior to Covid-19 crisis but does not portend a national reversal
In this year's largest state legislature election in West Bengal, Prime Minister Modi's Bharatiya Janata Party (BJP) has not achieved the unprecedented victory that it might have dreamt of a month ago, before the Covid-19 crisis.
This weakens its prospects of gaining control of the upper house of the federal parliament, which is necessary for it to pass constitutional reforms. But it is premature to consider this a turning point for the BJP's grip on power and for those investors who view the BJP as the best vehicle for economic reform.
We remain positive on equities in India: despite the absolute scale of the Covid-19 tragedy and the likely cut to near-term growth expectations, India remains an attractive, albeit imperfect, mix of value relative to history, particularly in Tech, macroeconomic growth and structural reform.
The BJP remains firmly in control of the lower house of the federal parliament and no other party or person comes close to rivalling the BJP or Modi at the national level. India does not have the bipartisan or bipolar politics that segregates the national electorate into two camps, which did for Trump in the US and may do for Bolsonaro in Brazil.
PM Modi's BJP increased its seat count in West Bengal from 3 to 77 (or from 1% to 24% of the total) compared to the 2016 election. The Trinamool Congress Party (TCP) has ruled the West Bengal state legislature since 2011 and has retained its seat count of 72%.
West Bengal accounts for 8% and 7% of seats in the lower and upper houses, respectively, of the federal parliament. Its population also equates to 7.5% of the national total. TCP is a regional party with merely 4% of the lower house of the federal parliament. Despite these small numbers, West Bengal was the focus of the 2021 state legislature elections in India because of four factors:
The BJP won 43% of federal parliament seats from West Bengal in the 2019 general election, prompting it to target this state legislature election to challenge the incumbent TCP. Although, with Muslims making up 30% of West Bengal's population, PM Modi's claim (on 1 April) that the BJP would win 200 seats (or 68% of the total) was always highly unlikely.
West Bengal represented an attempt by the BJP to use its tried and tested national electoral messaging on Hindu-Muslim polarisation and economic development to counter an entrenched, incumbent regional political party – having already soundly defeated Congress, the other largest nationwide party, at the federal level, victory in West Bengal might have set a precedent for the BJP's fortunes in other states dominated by local parties.
State legislatures vote to elect members of the upper house of the federal parliament, the Rajya Sabha, where Modi's BJP-led coalition currently hold 49% of seats, compared to 62% in the lower house, the Lok Sabha (whose members are voted for by the public). Winning control of more state legislatures improves the prospects of gaining majority control of the upper house and enacting constitutional reform.
It was the first electoral barometer of the political fallout from the Covid-19 crisis, where official national daily new cases and deaths have risen to 300-400k and 3-4k, respectively, in the last week, about a tenfold increase from a month ago, and the PM Modi's government has been blamed for poor policies on vaccine rollout, management of medical and oxygen supplies, inaccurate collection of data, misinformation on how to prevent infection, and failing to prohibit mass religious and political gatherings.
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This report is independent investment research as contemplated by COBS 12.2 of the FCA Handbook and is a research recommendation under COBS 12.4 of the FCA Handbook. Where it is not technically a res...