Uttar Pradesh elections are the one to watch

Senior Columnist Ashok Malik explains how Assembly elections in five states of India will impact growth and investments in the country. How will this round of elections in Uttar Pradesh, Punjab, Uttarakhand, Goa and Manipur affect economic reforms This is the last round of elections before the rollout of the Goods and Servce Tax (GST). A good performance by the BJP is sine qua non for the smooth rollout of this reform, which, arguably is the most import tax reform ever undertaken in India. On the other hand, a poor performance by the BJP will embolden the Opposition to close ranks and put roadblocks in the path of GST. Coming to the individual states, the results in UP will be the most important. If the BJP does well, it will indicate that the BJP is holding on to its performance in 2014 (when it won 71 out of 80 seats and 2 seats went to its ally Apna Dal). This will augur well for the party in 2019 and reassure investors, both global and domestic, that there is likely to be continuity in the government's policies beyond 2019 and that the economy is unlikely to face much political turbulence in the years ahead. However, negative news for the BJP in UP will mean a reverse of all of the above and economic progress could be held hostage to partisan and obstructionist politics by a rejuvenated Opposition. What will be the best case scenario, in terms of results, for the country's economy How likely is this outcome One unique feature of these elections is that the BJP is a contender in all the states, barring, of course, Manipur. This is in contrast to the last round of state elections when the BJP was not seriously in the running in large states like West Bengal and Tamil Nadu or even Kerala.

Most people expect the Shiromani Akali Dal (SAD)-BJP coalition that has been in power in Punjab for 10 years (two terms) to lose. But it is expected to do well in all the other states - Uttar Pradesh, Goa and Uttarakhand. As I said before, Uttar Pradesh is the most important of all these state elections. Over the last wo decades, the state has mostly seen a two-horse race between the Samajwadi Party, that has been ruling the state since 2012, and the Bahujan Samaj Party, which ruled it for the previous five years. The two national parties, the BJP and the Congress, had been confined to the sidelines during this period. But the Narendra Modi-Amit Shah (Prime Minister and BJP president, respectively) combine has managed to revive the fortunes of the BJP in the state, as seen in the 2014 general elections, and the party now stands a real chance of coming to power in the state in 2017. The question is: Can it win a majority in the state and form the next government Opinion polls have thrown up various possible scenarios - including a hung house where the BJP could be the largest or the second largest party but all of them agree on one thing - that the BJP will do well and that this election in UP will see a three-cornered contest. The better the party does, the better it is for Modi's chances of re-election in 2019. What is the worst case scenario for the economy And how likely is such an outcome The worst case scenario would be for the BJP to lose Goa and Uttarakhand in addition to Punjab and do badly in Uttar Pradesh. There's also the possibility of the SP tying up with the Congress and winning in Uttar Pradesh. In such a scenario, the Congress would find itself in power in India's most important state. Uttar Pradesh is India's largest state, has a population of 200 million - the same as Brazil. It is considered a political barometer of the political mood in the country. So, the results of UP will be the most important. Then, if the Congress or the other contender Aam Aadmi Party (AAP) win three states, it will present a very challenging scenario for the Modi government and also for the economy. It will almost certainly reduce any chance of the Opposition cooperating with the government to pass the GST Bill as well as any other important reform-related legislations. However, such a scenario is unlikely to unfold. The BJP should do better than the Congress in all states barring Punjab (and Manipur). What should foreign investors be looking out for in these elections As I've said earlier, Uttar Pradesh is the most important state. Over the last 25 years, regional parties have held sway there. But under Modi and Shah, the BJP, a national party, has once again emerged as a contender for power. If Modi can win the state for the BJP it will indicate a new churning in Indian politics and indicate that there is space in this country for a macro-economy-led development model. Already, Modi has reclaimed ground lost to regional parties in Maharashtra, Haryana and Jharkhand but Uttar Pradesh will be the big test case. Why is this round of elections being called the semi-finals before 2019 In a sense, every state election is a semi-final, at least in that state, before the general elections; and this round of elections is no different. That said, Uttar Pradesh is so large that it is going to be a test of whether the Modi magic, witnessed in 2014, still has juice. If the BJP does well, it will improve his chances of getting re-elected in 2019. And if the Congress does badly, it will diminish its chances of a revival. Such a scenario will mean that the BJP will not have any pan-Indian rival to contend with in 2019. Then, this will be the first Assembly elections after demonetisation, which has affected every family in UP and the rest of the country. In that sense, it will also be a sort of referendum of demonetisation.