NEW DELHI (Reuters) - Indian Prime Minister Narendra Modi was in the final phase of campaigning on Thursday to retain power in his home state and stave off the most serious challenge yet from a combined opposition.

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The election for a new legislature in the western state of Gujarat this weekend is turning out to be a greater challenge for Modi than anticipated, the polls show, as rival parties seize on discontent caused by a slowing economy.

Gujarat is where Modi earned his spurs as a business-friendly chief minister who cut red tape and graft and turned it into an economic powerhouse.

But an unpopular national tax and a shock move last year to withdraw most currency in a fight against graft has hurt Gujarat, like the rest of the country, and its businessmen are making loud complaints.

Three big polls carried out in the run-up to the vote on Saturday and next week have predicted a victory for Modi’s ruling Bharatiya Janata Party (BJP) but with a greatly reduced majority.

An ABP-CDS poll this week gave the BJP 91-99 seats in the 182-member state house and the main opposition Congress 78-86, suggesting a close fight. To win a party needs 92 seats.

The surveys have often gone wrong, though, and Modi himself remains far more popular across the country than his rivals including Rahul Gandhi who is leading the Congress charge to weaken Modi in his home base.

Modi has thrown himself into the campaign, addressing dozens of rallies over the past month, saying he alone could deliver on development. On Thursday, he was due to address party colleagues on their mobile phones to ensure a strong voter turnout.

Amit Shah, the president of the BJP, said the party had full confidence in Modi’s ability to deliver an emphatic victory.

“He knows that only an absolute majority in Gujarat polls will legitimize his reforms and silence critics,” Shah said.

Votes from the election will be counted on Dec.18 and the results announced the same day.

Gujarati businesses - who form the core of Modi’s support base - have complained about the new Goods and Services Tax as aggravating tough economic conditions.

Jagdip Desai, a sanitary ware manufacturer, said the complex tax procedures had come on top of slowing demand and he had to fire 3,000 workers.

“Modi will have to pay a political price for our financial distress.”