The loss of Bharatiya Janata Party (BJP) in the state elections in Bihar comes as a major setback for Prime Minister Narendra Modi's one-and-a-half-year-old government in the centre. The 'grand alliance' between ruling Janata Dal United and Rashtriya Janata Dal won a two-thirds majority in the state assembly, striking a blow to BJP's ambitions to extend its winning streak after a decisive win in the national elections in mid-2014.
BJP had last year also faced defeat in state elections in Delhi but Bihar has much bigger say in Rajya Sabha and its loss in the state is therefore much more critical.
The central government that has already been facing a challenge in getting key reforms ratified by the upper house of the Parliament, where it is in minority, will see stronger opposition paralysing its reforms initiatives in the future.
Members of Rajya Sabha, the upper house of the Parliament, are elected by state legislatures. Since crucial economic reforms need to be passed by both the houses of the parliament, the BJP government needs to win more state elections to support important legislations initiated by it in the Lok Sabha, the lower house of the parliament.
The government has already lost face over keeping its word to get goods & service tax (GST) implemented by April 1, 2016. The monsoon session of the Parliament failed to see consensus among political parties to give a green signal to GST.
Although, GST may yet be implemented by that date, if the winter session of the parliament manages to see it through and the state governments move swiftly to support the crucial tax reforms, the probability of that happening is at best distant.
The 30-stock benchmark Sensex that has lost over 10 per cent value after hitting a peak in March, is expected to be dominated by bears in the near term as hopes for a bigger reforms push stands belied. This comes at a time when the US Fed is all set for a rate hike next month, a move that would suck out portfolio investors’ money out of emerging markets.