Upstart anti-establishment Aam Aadmi Party (AAP) crushed both the BJP and Congress in the Delhi assembly election on Tuesday, ending an aura of invincibility built around Prime Minister Narendra Modi since he swept to power last year.

With the vote of the main national opposition Congress party collapsing, the AAP was the main beneficiary, capturing 67 of the 70 seats in the capital.

Delhi is a small but high profile state, and a comprehensive rout in the capital could hurt the BJP's ambitions to capture India's third most populous state, Bihar, in a state election later this year.

"While Delhi is not very significant in electoral terms, a BJP loss there shatters the popular narrative around the BJP's invincibility," said Milan Vaishnav, an associate at the Carnegie Endowment for International Peace, told Reuters.

"A loss in Delhi certainly signals an end to Modi's honeymoon. Furthermore, because it is the capital city, an opposition government, especially one led by the confrontational AAP, would be a constant thorn in the Modi government's side."

Winning power in the states is crucial for Modi to control the Rajya Sabha, where the BJP lacks a majority and has been thwarted in its effort to pass reforms, including wider opening of the insurance sector.

The anti-corruption AAP, led by former tax official Arvind Kejriwal, was set to win 67 seats out of 70 seats in the Delhi assembly, the biggest ever tally for any party in the capital. It was a spectacular jump from the 28 seats that AAP won in the last Delhi election in 2013.

Congress, the BJP's main nationwide challenger, failed to win a single seat in a state that it ruled for 15 years until 2013.

The BJP slumped to 3 seats, its worst showing ever, down from the 32 it won in 2013. But with its share of the popular vote staying the same, it was clear that the Congress’ share of the vote had switched over to the AAP. In fact the decimation of the Congress benefited the AAP as it consolidated the anti-BJP vote.

Modi, who had campaigned extensively during the election, congratulated Kejriwal and said in a Twitter post that he would work with the Delhi chief minister for the development of the capital.

The prime minister swept to power with the biggest national election victory in three decades last year, promising to revitalise India's economy. His BJP has won elections in a string of big states in recent months, including Haryana, Maharashtra and Jharkhand.

According to Reuters, Modi has sought to fix governance and tried to push through reform legislation by executive decree after the opposition blocked him in the Rajya Sabha. But corporate investment has yet to revive, waiting for structural reforms in the economy.

All eyes are now on the reform-friendly federal budget that the government is expected to unveil later this month. With the defeat in Delhi in mind, Modi will be keen on implementing ‘big bang’ reforms and on creating jobs to cement his credentials as a can-do leader.

- Karan Singh

To Learn More:

BJP trounced in Delhi by AAP in big blow for Modi (by Sanjeev Miglani and Andrew MacAskill, Reuters)

Delhi Election Result: Dream Victory for Arvind Kejriwal's AAP, BJP Flattened (by Mala Das, NDTV)

Delhi election results 2015: List of AAP candidates who won by a margin of over 20,000 votes (The Times of India)