Modi win in 2 states pave way for national overhaul

(MENAFN- Arab News) NEW DELHI: It's been a good weekend for India's Prime Minister Narendra Modi.

Two days ago he took his biggest step yet toward boosting the economy with a shift to more market-based energy pricing. Then Sunday his Bharatiya Janata Party came first in two state elections building on his landslide victory in May.

Modi now has a stronger hand to push ahead with tougher steps to overhaul Asia's third-biggest economy. Those include passing a goods-and-services tax further opening up to foreign investment and making subsidies for fertilizer cooking gas and food more targeted toward the poor.

"The decision to scrap fuel subsidies and raise gas prices is a potential game-changer in the realm of investor perceptions of Mr. Modi's commitment to undertake major fiscal and structural reforms" Nicholas Spiro managing director of London-based Spiro Sovereign Strategy said by e-mail. "The stronger the BJP is at the state level the more scope there is for Mr. Modi to undertake meaningful reforms. Now the stars seem to be aligning for Mr. Modi."

The BJP won 122 of the 288 seats in Maharashtra and 47 of 90 in Haryana official results show. State elections are important for control of the upper house of Parliament where representation is based on seats in local assemblies. While the BJP controls the lower house or Lok Sabha after winning the strongest mandate in 30 years it holds about 18 percent of the Rajya Sabha.

Thus the victories could make it easier to push through a six-year-old bill proposing to allow foreign investors ownership of as much as 49 percent of a local insurance company and also reach agreements to replace more than a dozen types of tax that increase incentives for corruption. Passing the tax law would require votes in both houses of Parliament plus the support of 15 of the 29 states to amend the constitution.

Formation of a single internal market offers the $1.9 trillion economy a significant boost according to the National Council of Applied Economic Research in New Delhi.

"The prospects are very good of Modi being able to carry out other tough reforms" Akshay Mathur head of research at Mumbai-based Gateway House said by phone. "GST requires a certain consensus and given his leadership and the kind of euphoria over his victory chances are that he will push the GST through."

The optimism follows on the heels of Modi's Oct. 18 move to scrap controls on diesel prices and increase natural gas tariffs. These were his biggest steps toward curbing subsidies that have contributed to one of Asia's widest budget deficits.