What will the defeat of the Bharatiya Janata Party in three North Indian states mean for the direction of policy over the next few months, in the run up to general elections? The weeks before the elections in five states were beset with serious questions about Prime Minister Narendra Modi’s government: how it had handled the Rafale deal to buy fighter planes from France, whether its intervention in the Central Bureau of Investigation mess was legal and its messy spat with the Reserve Bank of India that eventually led to the resignation of a governor. The coming months are likely to see the government attempting to pivot to a narrative of progress and promises, as well as, by all accounts, some attempt to leverage the upcoming Kumbh Mela to emphasise the BJP’s commitment to Hindutva causes.

One of the presumptions about the BJP’s losses is that they may have much to do with agricultural distress, and indeed the data does suggest that the BJP lost more seats in areas with more farmers. This is leading to speculation that the BJP will announce a large-scale loan-waiver for farmers across the nation as a way of mitigating agricultural losses and to stem the tide of voters away from the party. In Parliament this week the government said it was not officially considering a national loan waiver. But talk in New Delhi has suggested that the Budget expected in February will have a package aimed at farmers, and it may well be waiving loans. Will this be prudent?

A waiver was among the many demands of farmers who marched into Mumbai and Delhi over the last few months to drive home the extent of the distress. But experts suggest that waivers themselves do not achieve enough while endangering the country’s fiscal situation. Indeed, it will be interesting to see how the Congress handles the actual process of waiving loans in the three states it has just won, after promising the moon. Telangana’s income support scheme, Rythu Bandhu, has been lauded as a much more useful intervention from government, but one that is also far harder to implement across the country, at least in the short term.

There are also fears that the next few months will see the government announce a slew of sops to make up for its woeful economic performance. This might constitute acknowledgment of the fact that Modi’s flagship programmes, Make in India and Skill India, have amounted to very little. But if the government moves forward with such measures, it may also endanger the other process where the BJP discovered that things cannot be fixed simply by a snapping of the fingers or changing personnel: the entrenched twin balance-sheet problem that plagues the Indian banking and corporate system.

Public sector banks are still struggling to handle the massive amount of non-performing assets (or bad loans) on their books. Despite the Reserve Bank of India’s concerns, the government has consistently pushed the public sector banks to expand credit, particularly to the small and medium industries that were hit by demonetisation and the botched rollout of the Goods and Services Tax. With a new governor in the RBI, there is fear that the government will have a freer hand to throw fiscal caution to the winds. The new chief, Shaktikanta Das, is known for being a fiscal conservative, but most expect him to be much more willing than his predecessor
to do the government’s bidding. Will the government then attempt to spend its way out of a crisis created by its own economic mismanagement? If so, it would only confirm that on the policy front, despite the historic mandate Modi received in 2014, little has actually changed.