Indian Prime Minister Narendra Modi needs success at the upcoming state elections to bolster the ruling party's presence in the Rajya Sabha, India's upper house of parliament. The Bharatiya Janata Party's (BJP) lack of a majority in the upper house has hamstrung its legislative initiatives, including key business reforms. The opposition can delay, and in many cases, shoot down the government’s bills at will.
However, the BJP will not be able to regain an upper house majority by the next general election in 2019. The best-case scenario would see the BJP and its allies occupy only about a third of the upper house by 2019. The inability to control both houses of the parliament has important implications for Modi’s style of governance and policy outcomes for the rest of his term.
Figure: Distribution of seats in Rajya Sabha (as of 5 February 2017)
Uttar Pradesh no game-changer
The BJP places great significance in the upcoming Uttar Pradesh assembly election, which will be held in seven stages between 11 February and 8 March. As India’s most populous state, it has more upper house seats (31) than any other state. The BJP’s dismal showing in the state’s 2012 election, followed by its subsequent decisive win of all the state’s seats in the Lok Sabha, the lower house, in 2014, means that it has huge upward potential.
However, filling Rajya Sabha seats is not a straightforward exercise. Its composition is largely determined by state-level elections, but the election process is indirect and can be complex. Different from the lower house, Rajya Sabha members are replaced on a rolling basis rather than a one-off exercise. Uttar Pradesh’s 31 members will be replaced in three tranches up to 2022, with only 10 seats up for grabs before the 2019 elections.
However, it has little chance to capture all additional seats even with a resounding victory. The important role regional parties play in Uttar Pradesh means that the Samajwadi Party and the Bahujan Samaj Party will reduce the numbers of seats the BJP can walk away with. An increase of between three and seven seats in the upper house would be considered a good outcome for the BJP.
The big picture
Following their solid performances in several state election in recent months, the BJP and its allies are well placed to boost their numbers in the Rajya Sabha. They are likely to gain six or seven seats this year from vacancies representing Andhra Pradesh, Haryana, Jharkhand, Maharashtra and Rajasthan. The government will also capitalise on vacancies opening up for four nominated berths, which will almost certainly be filled with BJP-friendly candidates.
However, the BJP is likely to lose three seats owing to previous election drubbings in Bihar (2015), Karnataka (2013) and Telangana (2014); because Rajya Sabha members are replaced on a rolling basis, it can take several years for state election results to translate into upper house seats. Likewise, the BJP is unlikely to retain its current allocation of seats from its traditional stronghold in Gujarat following state election scheduled for later this year, as the party’s support base is crumbling.
According to our forecast, the BJP and its allies will be able to add only about 15 seats to their combined upper house tally before the 2019 general election. This would lead to a total of just more than 80 out of the 244 seats. As a result, state polls in the next two years will do precious little to bolster the government’s ability to pass laws at the federal level.
Map: Projected changes of BJP+ seats in Rajya Sabha before April 2019
Outlook: Focus on non-legislative reforms
With political parties looking ahead to the 2019 general elections, the opposition will intensify its efforts to obstruct the government’s legislative forays. Further delays to the implementation of a new Goods and Services Tax (GST) – a flagship reform programme – are a distinct possibility, as both houses of parliament must approve the contours of the new tax. Furthermore, while finance minister Arun Jaitley proposed amendments to federal labour laws in his budget speech on 1 February, these are as unlikely to see the light of day as now-shelved amendments to a controversial land acquisition act.
Save for the most important pieces of legislation, such as the GST law, the government is unlikely to invest major political capital with an increasingly hostile opposition in the legislature. Instead, the Modi administration is likely to continue to pursue alternative avenues to get things done. Since taking power in 2014, the Modi administration has sought to distract from the bottleneck in the upper house by shifting the reform impetus to the state-level. Modi has also developed a penchant for administrative reforms that completely bypass parliament. Ahead of the 2019 election, the government is likely to add weight behind such non-parliamentary reforms.
These approaches mean that investors can look forward to further liberalisation of FDI restrictions and more efficient licensing and permit procedures. However, an increasing emphasis on closed-door processes also means reduced policy predictability and raises the spectre of ill-conceived governance measures.
More in-depth analysis of the key issues impacting business in India is available via our Country Risk Monitoring Service