By the BBC's Satish Jacob in Delhi

Even the worst pessimists in India's ruling Bharatiya Janata Party (BJP) did not expect defeat in all the four northern states that went to the polls this month.

An immediate casualty will be Mr Vajpayee's planned labour law reforms.

The BJP not only lost control of the key state of Uttar Pradesh, but the opposition Congress party also took Uttaranchal and Punjab.

Final results from north-eastern Manipur are expected on Tuesday, but the latest counts show the ruling party falling behind.

The electoral debacle is not going to pose an immediate threat to Prime Minister Atal Behari Vajpayee's coalition government in Delhi.

But the prime minister's comfortable hold on power has been dealt a severe blow.

Political barometer

The defeat in Uttar Pradesh will hurt the BJP the most.

Having won 158 seats in the last election, the party came away with just 88 this time, putting it in third place behind the socialist Samajwadi party, which won 145 seats and the Bahujan Samaj Party.

Not even the most pessimistic supporters foresaw the defeat

India's most populous state, with an electorate of 99 million voters, has always acted as a political barometer in the country.

Of India's 12 prime ministers since independence, eight including Mr Vajpayee have hailed from the state.

The loss of the BJP's majority in Uttar Pradesh will reduce Mr Vajpayee's ability to push through economic and labour reforms in the face of the varying demands of the party's allies.

The blow might have been more severe had the Samajwadi party won an absolute majority.

But with 145 seats, its leader Mulayam Singh Yadav requires the support of another 57 members in order to form a government.

But the BJP's poor performance make Mr Vajpayee vulnerable.

Leftwing resistance

An immediate casualty will be the prime minister's planned labour law reforms, which were to make it easier to hire and fire, as well as to shut down unprofitable companies.

Under existing legislation, which heavily favours employees, it is virtually impossible for employers to close companies even if they are losing money.

Congress leaders believe that if the BJP is on the decline, the Congress must be on the rise.

Mr Vajpayee was planning to make it possible for companies with more than 1,000 employees to retrench without asking for government permission, which is currently required.

The move was already facing resistance from leftwing parties and the BJP defeat will virtually ensure that the amendment will not go through.

The electoral setback will also force Mr Vajpayee and his party colleagues to pay closer attention to the wishes of their coalition partners.

Some of them are unhappy with an anti-terrorist law proposed by the BJP, which they feel in its present form could be misused to harass minority groups such as Muslims.

Proposals for the general budget and the railway budget have already been finalised in line with the prime minister's planned economic reforms.

And although it is unlikely that the opposition will oppose the reforms, it may force the government to roll back some of its plans such as a reduction of subsidies and an increase in railway fares.

Horse trading

Neither the BJP nor the Samajwadi Party are likely to be able to form a government on their own, which will give huge leverage to the Bahujan Samaj Party, which represents Uttar Pradesh's lowest castes.

Its leader, Mayawati, will now play a pivotal role in moves to form a new state government, and is expected to demand the job of chief minister as the price of her support for any coalition.

As for Congress, it may have come a poor fourth in UP, but victories in the newly-created hill state of Uttaranchal and the wealthy northern state of Punjab have put it back on the comeback trail.

Congress leaders believe that if the BJP is on the decline, the Congress must be on the rise.

With at least two - and possibly three - more state governments under its belt, the party has registered a formidable presence across the country.