Much of the commentary around the BJP’s stunning victory in Uttar Pradesh has involved the prospect of Prime Minister Narendra Modi deploying his renewed political capital to improve India’s business environment. But what does the win mean for UP itself?For all its political heft, the state remains an economic outlier, with a percapita income of Rs 40,373 ($620) a year, around half the national average. Indeed, the PM’s tweet on March 11 —“When UP develops, India develops” — hinted at the untapped economic potential of India’s most populous state. He also promised to transform Uttar Pradesh into ‘Uttam Pradesh’ — India’s ‘best state’.One explanation for why UP continues to be an economic laggard is the culture of political patronage prevalent in the state, although this is not unique to UP. The emergence of regional parties such as the Samajwadi Party SP ) and the Bahujan Samaj Party (BSP) in the 1990s saw political parties increasingly appealing to caste, religious and sub-regional aspirations, undermining wider progress.The BJP’s ability to override the state’s caste-based political order in the recent elections provides it with a unique opportunity to stimulate statewide socioeconomic development.The state has a number of natural advantages. For one, it has one of the largest pools of semi-skilled and unskilled labour, ideally positioning it for labour-intensive manufacturing envisioned in Modi’s ‘Make in India’ initiative. In addition, with a population close to Brazil’s, UP provides companies such as those in the agro-processing and consumer-focused segments access to the largest untapped consumer base in the country.Despite these advantages, UP has been largely overlooked by foreign investors, who are wary of the significant political, security and compliance risks entailed in conducting business in the state. In September 2016, the Singapore-based Asian Competitiveness Institute ranked UP the most difficult state to do business in. The new state government will need to address four major challenges to realise Modi’s pitch for development in UP.UP was ranked in the 2011 Census to be the lowest among the states, with only 36.8% of households having access to electricity. Although the BJP victory is likely to improve policy coordination between the federal and state governments, reforming the finances of the state electricity board will remain politically challenging. Increasing tariffs will dampen public support for the government, but will be essential to reducing operating losses of the utilities and stimulating investments in the state electricity grid, which would, in turn, open up significant opportunities for the manufacturing and allied sectors.Social Fault LinesOther than policy predictability, investors prefer a stable and secure operating environment. Incidents such as the 2013 Hindu-Muslim riots in the western districtof Muzaffarnagar, which left at least 62 people dead and rendered hundreds homeless, have contributed to UP’s dubious reputation of being a highly-charged communal cauldron, which has acted as a significant barrier for major foreign investments. The BJP’s ability to appeal to a large cross-section of disparate social, religious and caste-based groups in these elections affords it a unique opportunity to bridge some of these social fault lines. It can now also avoid socially divisive issues, such as building the Ram temple in Ayodhya.Crime and Politics: According to data from the National Crime Records Bureau for 2015, the crime rate in UP was twice the national average. The problem was reflected in the fact that almost a quarter of the candidates fielded in these elections have serious criminal charges against them, according to data compiled by the Association for Democratic Reforms. Extortion and violent crime are of particular concern for businesses, especially those engaged in politically exposed sectors such as infrastructure and alcohol. The new government will need to strengthen local law enforcement and curb the influence of gangs in order to provide a secure environment for businesses.Although there have been no headline-making corruption scandals at the federal level since the BJP has come to power at the Centre in 2014, corruption at the local level, especially in states like UP, remains endemic and poses significant integrity risks to businesses. This is especially true for foreign companies, which increasingly have to comply with tough international anti-corruption frameworks such as the US Foreign Corrupt Practices Act (FCPA) and the UK Bribery Act. Such extraterritorial laws make these companies extremely wary of investing in states with high levels of corruption like UP.The state’s perception of the demonetisation exercise rolled out in November 2016 as a well-intentioned anti-corruption measure played a part in the BJP’s strong performance. This anti-corruption drive needs to be taken ahead in the state by increasing transparency in bureaucratic procedures and licensing requirements.Despite the BJP making gradual improvements to the business environment at the federal level, there have been significant regional variations in the operating environment in different states, with UP’s development stunted by the policies of its previous governments.With the BJP now in power both in the state as well as nationally, it is well-positioned to address some of these structural challenges and achieve Modi’s vision of transforming Uttar Pradesh into India’s ‘best state’.The writer is senior vice-president, Control Risks India