Narendra Modi
Indian Prime Minister Narendra Modi's Bharatiya Janata Party all set to win key states of Gujarat and Himachal Pradesh Reuters

Indian Prime Minister Narendra Modi's Bharatiya Janata Party (BJP) is set to retain power in his home state of Gujarat. Leads available for the state's 182 assembly seats suggest that the BJP is now leading in over 100 seats in the contest, which is being considered a prestige battle for Modi.

A combined opposition led by the Indian National Congress's (INC) Rahul Gandhi was leading in 75 seats. The INC was hoping to come back to power in the state after being in the opposition for over two decades.

Gujarat has been a strong BJP bastion as the party has governed the state for 22 years, with Modi being at the helm as chief minister of Gujarat from 2001 to 2014.

Meanwhile, in the northern Indian state of Himachal Pradesh, the BJP was cruising ahead in 43 of the total 68 assembly seats.

Gujarat saw a voter turnout of about 68%, while Himachal Pradesh's voter turnout was 74%.

Reacting to the leads, Indian Home Minister Rajnath Singh said, "[We] will form the government in both Himachal and Gujarat with a clear majority." Earlier, almost all exit polls had predicted more than 100 seats for the BJP in Gujarat.

"Rahul Gandhi did put up a good fight but the people of Gujarat and Himachal have voted for development," Union Law Minister Ravi Shankar Prasad said.

Indian markets also showed signs of jubilation over the final voting trends as the BSE Sensex and the NSE Nifty turned positive after falling over 2% in the opening trade on Monday. The Indian rupee weakened against the US dollar, while bond yield hit a fresh 16-month high, the Mint reported.

Modi's magic continues

While the latest results have reiterated the fact that the Modi wave continues to sweep the country since the BJP won a landslide victory in the last general elections in 2014, it also suggests the tough tests that lie ahead for new Congress president Rahul Gandhi.

Modi will face a national election in 2019 and the opposition aims to slow his momentum by putting up a serious challenge in state elections. Experts say the latest results will have a huge impact on national politics. With this win, the BJP's confidence will be sky high ahead of the 2019 elections. The saffron party had also won the state of Uttar Pradesh earlier this year.

The victories in Gujarat and Himachal Pradesh come at a time when the BJP has struggled to woo voters following its shock move in November 2016 to withdraw high-denomination notes, and the poor implementation of a national sales tax known as the Goods and Services Tax (GST). Demonetisation and GST had disrupted businesses and caused resentment among its core voter groups.

The win in Gujarat also comes at a time when caste factors dominated the state election. Leader of the Patidar caste Hardik Patel, Dalit activist Jignesh Mevani and backward caste leader Alpesh Thakor formed an alliance along with the INC to cash in on the resentment against the BJP.

The BJP's campaign this election revolved around Modi as he held more than three dozen meetings in the state and campaigned on economic development, local Gujarati pride and nationalism to persuade voters.

Modi's win in the national vote in 2014 was partly attributed to his work in Gujarat during his period as the chief minister of the state. Losing his home state after he moved to the centre would have meant a loss of face for the prime minister.

Challenge for Rahul

Rahul Gandhi officially became the INC chief on 16 December after he took over the reins from his mother Sonia Gandhi, who had been the president of the 132-year-old political party since 1998.

The INC has put up a good fight in Gujarat as leads suggest the party has gained 14 seats when compared to its showing in the 2012 assembly elections. The improvement in numbers is likely to boost the confidence of Rahul and his followers in attempting to stop the Modi juggernaut in future elections.

Although Gandhi tried to tap into any anti-incumbency sentiment against the BJP, which has been in power in Gujarat for two decades, he failed to get a majority. As the BJP forms the government in Gujarat and Himachal, Gandhi will face a serious challenge in defending his party's government in the southern state of Karnataka, where assembly elections are due early next year.

While taking over as the party president, Gandhi promised to give more chances to younger faces in the upcoming elections. "We are going to make Congress the grand old and young party," he said.

However, the real challenge that Gandhi will face in the coming years would be to revive his party's organisational set-up, particularly at the grassroots level. And, the party cadres will be hoping for Rahul to implement the changes sooner rather than later in order to mount a serious challenge to PM Modi's BJP in the 2019 general elections.