By Simon Denyer

AHMEDABAD, India, Dec 10 (Reuters) - Industrialists drool about the western Indian state of Gujarat, agriculture is booming, the roads are great, the bureaucracy relatively efficient and rural development a priority.

Gujarat is one of India's fastest growing and most prosperous states. In theory, Hindu nationalist Chief Minister Narendra Modi should be a shoo-in for a third term in elections starting on Tuesday.

In fact though, Modi, a high-profile but controversial figure, is facing his toughest test yet.

"It's very difficult to say who will win at this point in time," said Anil Gupta, a professor at the Indian Institute of Management in the state's main city, Ahmedabad. "When things are this close, there could be surprises."

The vote, in which Modi's Bharatiya Janata Party (BJP) is in a straight fight with Congress, is seen as a barometer of the country's two main parties' fortunes as the countdown begins to national polls due by mid-2009.

Congress, which runs the national coalition government, has run a lacklustre campaign, and most analysts say Modi is still favourite to win -- but not yet home and dry.

"In the name of development you can never win an election in India, at least not in Gujarat," said Ajay Umat, editor of the Gujarati-language daily Divya Bhaskar.

Modi's economic track record is impressive, and for weeks he campaigned on this alone.

"I want to see Gujarat flourish," Modi told rallies as he crossed central Gujarat in an orange coach last week. "Water, electricity and education are my main concerns."

Gujarat's economy has been growing at more than 10 percent a year, significantly above the national average.

Agriculture, stagnating in the rest of India, is growing at more than 8 percent a year in Gujarat, although the benefits are mainly going to farmers who planted transgenic cotton.

The commercially savvy Gujaratis own 30 percent of the shares on India's booming stock market, and are feeling wealthier by the day.

But consultant Sunil Parekh says parts of Gujarat are not shining quite as brightly as the overall numbers suggest.

"It is absolutely jobless growth," he said. "The huge expansion which has taken place has absorbed huge retrenchments, and investment has been very capital intensive."

STRATEGIC SHIFT?

Electrification has not reached as many rural villages or households as Modi suggests, while nearly 150,000 farmers are facing prosecution for unpaid electricity bills.

Another grievance is that Modi is seen to have supported the big industrial houses and not small and medium enterprises," said social scientist Achyut Yagnik.

Modi's autocratic style caused unrest within the BJP, and several dissidents, unhappy at their share of the cake, have defected to Congress. Others, like former chief minister Keshubhai Patel, are simply not backing Modi.

In the past, the Patel caste, prosperous farmers and business people, have been the backbone of the BJP's support. This time, some could follow Keshubhai away from Modi.

That may be why Modi started banging the Hindu nationalist drum again last week, and accusing the Congress government of being soft on Muslim terrorists.

Mahesh Rangarajan, a history professor at the University of Delhi and a leading political analyst, said it was a calculated move to counter the caste factor, and appeal to voters as Hindus first and foremost.

But the strategy has also landed Modi in the soup. The Election Commission says he may have violated its Code of Conduct for justifying the killing of a Muslim by police in a staged gunbattle last year.

Congress leader Sonia Gandhi has also come under fire, and is facing investigation by the Election Commission, for referring to Modi's government as "merchants of death".

The 56-year-old chief minister swept the last elections in 2002 on an overtly pro-Hindu and anti-Muslim platform, passions inflamed by communal riots earlier that year.

Modi himself was accused of encouraging those riots, in which between 1,200 and 2,500 people were killed, most of them minority Muslims.

This time, Modi had been struggling to light an emotional touchpaper to rouse his supporters.

It remains to be seen if the latest bout of mudslinging between Modi and Congress lights that touchpaper.

A low turnout would make the race even tougher to call. (Editing by Alex Richardson)

AlertNet news is provided by