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Why BJP’s strong showing in state elections matters for the economy

Bharatiya Janata Party (BJP) emerging the single largest party in Maharashtra and winning the state elections in Haryana was greeted by investors who buoyed the benchmark indices to over 1.4 per cent in early morning trades on Monday. Here's a quick take on why the two state election results matter for the economy.

After a rude shocker in the state by-polls in the Hindi heartland of Bihar and Uttar Pradesh last month, the strong showing for BJP strengthens its position as a party drawing support from people. But what's especially significant is that it would boost its position in Rajya Sabha, the upper house of the Parliament.

While BJP-led NDA had won the Lok Sabha elections comfortably in May this year, it still depends on political support from rival parties for key decisions as the assent of both the houses of Parliament is required to see them through.

Members of Rajya Sabha, or the Council of States, are elected by the elected members of state assemblies and union territories. Control of more state assemblies, therefore, boosts BJP-led NDA to get both houses of Parliament to vote through its key decisions.

The expectation is that the elections results would help the central government to push through more economic reforms, albeit in the future.

Indeed, the government has also taken another step towards full decontrol of oil prices through deregulation of diesel prices. At one time a political hot potato given that diesel is used for running tractors and irrigation pumps in the hinterland, affecting the farmers’ vote bank, the decision was aided by the declining price of global fuel prices which actually pushes diesel prices down.

With this, petrol and diesel prices are now off the subsidy net, pushing down pressure on the exchequer. That leaves the more sensitive kerosene and LPG prices under the subsidy regime but with LPG already partly in the ‘user-pays’ structure, the subsidy bill of the government is expected to ease going forward and lower fiscal deficit.

(Edited by Joby Puthuparampil Johnson)

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