India’s ruling Bharatiya Janata Party (BJP) has suffered a major defeat in state assembly elections in Bihar, the country’s third most populous state.

Indian Prime Minister Narendra Modi personally led the BJP campaign in Bihar, vowing to build on the party’s strong showing there in last year’s national election and to make the BJP the dominant force in Bihar’s government for the first time.

Instead, the BJP-led electoral alliance won only 58 of the 243 state-assembly seats and 33.3 percent of the popular vote. Bihar will now be governed by a “Grand Alliance,” comprised of the Congress Party and two regional caste-based parties, the Janata Dal (United) and the Rashtriya Janata Dal, and led by the outgoing Janata Dal (United) Chief Minister, Nitish Kumar. With a 41.5 percent vote share, the “Grand Alliance” swept the board, winning 178 seats.

The BJP and Modi invested heavily in the Bihar election, calculating that a victory there would position them to win new allies and strengthen their hand in the Rajya Sabha, the upper house of India’s parliament, where the BJP does not have a majority.

According to media reports, the BJP campaign was the costliest ever mounted by any party in any Indian state election.

Modi was front-and-center in all this. He appeared at more than 30 campaign rallies. Moreover, neither he nor the scores of other national BJP leaders who descended on Bihar during the month-long, five-phase election did anything to contradict the media’s claim that the Bihar election was a referendum on Modi’s premiership.

The BJP waged a vicious right-wing campaign, making unabashed appeals to Hindu communalism. Party leaders, including Modi, promoted the “anti-beef” campaign that the Hindu right is mounting so as to assert Hindu supremacy and intimidate Muslims and other minorities. BJP leaders even made statements legitimizing the September 28 lynching of a Muslim farmworker in the neighbouring state of Uttar Pradesh for the “crime” of eating beef. (See: “India: Modi and his BJP government incite Hindu communalism”)

The Bihar election results constitute a popular repudiation of this foul campaign. They also reflect growing opposition to the Modi government’s pro-investor policies, which have included sweeping social spending cuts and a stepped up “disinvestment” (privatization) drive.

The “Grand Alliance” is the undeserving beneficiary of the mounting popular anger with the big business BJP. All three alliance partners—Kumar’s JD (U), the RJD of Lalu Prasad Yadav, and the Congress Party—are right-wing bourgeois parties, no less committed than the BJP to the Indian bourgeoisie’s drive to make India a cheap labor haven for world capital. And all three have a long history of making communal and caste-ist appeals.

The Congress Party is the traditional ruling party of the Indian bourgeoisie. It initiated the Indian bourgeoisie’s neo-liberal economic “reform” program in 1991 and during the past quarter century has done most of the heavy lifting in implementing it, as well as in the forging of an Indo-US “global strategic partnership.”

The JD (U) and its Bihar-based predecessor, the Samata Party, were for many years a pivotal BJP ally. They helped forge the BJP-led National Democratic Alliance coalition and served with the BJP in government, nationally from 1998 to 2004, and in Bihar from 2005 to 2013. Only in 2013, after the BJP had effectively made Modi its prime ministerial candidate for the 2014 national election, did Kumar and the JD (U) break their alliance with the Hindu supremacist BJP.

The RJD and its leader Lalu Prasad Yadav are notorious for their caste-based politics, including the push for “reservation” of government and education places (affirmative action) for the “Other Backward Classes” (non-Dalit, lower caste groups.) While claiming to champion “social justice,” the RJD upholds the interests of a narrow caste-based elite, as exemplified by the poverty and corruption that prevailed when it led Bihar’s government for most of the period from 1995 to 2005.

The RJD has been a Congress ally in the past. By contract, it has a long and bitter rivalry with the JD (U).

In accordance with the agreement that underpinned the Grand Alliance’s formation, Nitish Kumar will remain Bihar’s chief minister, although the RJD won 80 seats to the JD (U)’s 71. The Congress is very much the third player in Bihar’s Grand Alliance. It was allotted only 41 seats, wining 27 of them.

Bihar, which has a population of 105 million people, is India’s poorest state. Poverty and gross social inequality are the norm in India. Nonetheless, Bihar is notorious for its dilapidated and nonexistent social infrastructure and for the brutality of daily life, especially for agricultural workers. Unable to find work, millions of Biharis have migrated to other states, taking jobs as farm labourers and as construction workers and other types of day-labourers in the big cities.

These conditions are a damning indictment of the entire political establishment, from the BJP and Congress to the RJD and JD (U).

The BJP is trying to downplay the significance of its election debacle in Bihar. But there is no question it constitutes a serious reversal.

In the 2014 national elections, the BJP and its NDA allies captured 31 of Bihar’s 40 seats. Detailed analysis of those results indicated that the BJP and its allies would easily defeat the Grand Alliance if it maintained its 2014 vote share.

In the aftermath of Sunday’s announcement of the Bihar election results, a host of big business representatives and media commentators have expressed concern that the BJP will find it even more difficult to win legislative approval for unpopular pro-investor reforms, including the establishment of a nationwide Goods and Services tax and the gutting of restrictions on plant closures and mass layoffs.

Hoping to ease big business’s concerns, Finance Minister Arun Jaitley vowed Monday that “structural reforms will continue … at a rapid pace.” He said the government will use the February budget and executive-decrees that bypass parliament to enact “reform.” Under India’s constitution the Rajya Sabha can delay, but not ultimately prevent, the passage of budgetary measures.

Sections of the corporate media are urging Modi to rein in his Hindu right supporters, so as to concentrate on wooing support from the opposition parties for the economic reforms that they find it politically advantageous to oppose. Jaitley, who previously had vigorously defended the BJP’s incitement of Hindu communalism during the Bihar election campaign, told reporters Monday that “some irresponsible statements” did change the party’s election “narrative” without specifying what statements.

Modi, for his part, dispatched his right-hand man, BJP President Amit Shah, to consult with the leaders of RSS, the shadowy Hindu supremacist “volunteer” organization from the which the BJP draws the bulk of its cadres.

Sitaram Yechury, the General Secretary of the main Stalinist parliamentary party, the Communist Party of India (Marxist), was quick to hail the results of the Bihar election. He claimed that they improved the prospects for a “Third Front,” that is, for an election alliance of the Stalinists’ Left Front with a host of big business and regional caste-based parties—all of them erstwhile Congress or BJP allies.

The Left Front contested all 243 seats in the Bihar election, but won just two. Both of these were captured by the smaller, explicitly Maoist, Communist Party of India (Marxist-Leninist).