Delhi polls: Why BJP faced defeat and what it could learn from this

The most important lesson BJP should draw is that these results are not a negative verdict on Modi's development and reform agenda. Neither are they a reaffirmation of populist economic policies. If at all, these results must steel his resolve to focus even more sharply on measures that will reignite investment and generate large-scale employment.

Modi should now direct his cabinet colleagues to urgently implement a programme of rational economic policies that will release entrepreneurial energy and generate jobs. This is the time to take the people more directly into confidence about the merits of a rational and non-populist agenda of economic policies.

It has become even more important for the forthcoming budget to become bolder and announce measures that will improve investment and economic performance.
The BJP leadership and the government will do well to address the real problems and challenges faced by India's 58 million private enterprises, the great majority of which are in the MSME category. These enterprises provide employment for more than 85% of the working population and yet have to fight a daily battle against the rent seeking petty official, policeman and ubiquitous inspector.

The programme for improving the business climate must be further accelerated and focus principally on enterprises in the unorganised sector, which have never had the benefit of a level playing field. They have to borrow credit at 2.5-5% per month, face the inspector daily and see their margins being continuously squeezed by larger corporates, who are seen to control any government in power in Delhi. Unfortunately, images from Vibrant Gujarat reinforce this impression.

The prime minister must also ask his government to work actively to create the much-needed trust between itself and MSMEs. The long-standing culture of “us and them”, a legacy of colonial times, must be urgently jettisoned.

The direct tax system needs to be overhauled and made taxpayer friendly instead of being used as an instrument for harassing ordinary businessmen. At present a mere 35 million households of a total of 250 million are in the direct tax net. This number can easily be trebled. Therefore, tax officials should be given annual targets for expanding the tax net rather than maximising revenues. This will result in lower tax rates for the middle class and also lower dependence on indirect taxes.

A sense of urgency, commitment and dedication to the development and reform agenda and sharper focus on releasing private sector energy at the grassroots level must now inform BJP and the government. This will be a true measure of the party's maturity in interpreting the unprecedented Delhi verdict.