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by Ian Bremmer
But How Far Will It Take Pro-Market Reforms?
For nearly a year, an unmanageable coalition government in India has obstructed the ruling Congress Party's policy agenda and brought the country's economic reform process to a grinding halt. Now that an impressive electoral triumph in national parliamentary elections held in April and May has allowed the party to shed unreliable allies, can its leaders move the country in a more market-friendly direction? There are grounds for both caution and optimism.
The unexpected scale of the ruling party's victory will bolster India's political stability. With the help of small parties and independents, the Congress Party has assembled a coalition that controls 274 of 543 seats in parliament. With support from three regional parties outside the coalition, the total reaches 322 seats, a majority large enough to ensure that smaller parties cannot hold the reform agenda hostage.
The results also make clear that Indian voters are more concerned with pocketbook issues than with the potentially more incendiary questions of terrorism and national security. Despite efforts by the Bharatiya Janata Party (BJP) to capitalize on the public horror and outrage that followed last November's terrorist attacks in Mumbai, the opposition party won fewer seats than in any election in 20 years -- performing poorly even in Mumbai.
Nor are India's Communists in position to scuttle plans for market liberalization and other needed reforms, which have been on hold since they bolted the government last July. With just 24 seats, their lowest total since 1952, the far left will be no factor. In fact, no party is likely to force elections for another two years.
First, a note of caution.
There are still plenty of officials and local powerbrokers within the Congress Party who don't want free-market reform or a more open investment climate, particularly given the impact of the global recession on the economic fortunes of many of their constituents.
We can't expect a serious push toward privatization of state-owned assets, and those hoping for a burst of pro-market reforms will likely be disappointed.
Instead, the lesson the Congress Party has probably taken from its victory is that large-scale state spending (on debt relief for 43 million farmers, subsidies for gasoline and diesel, and wage hikes for public-sector workers) pays off on election day. All that government spending, much of it off budget, has left India's fiscal balances in rough shape -- the government's budget deficit could exceed 10 percent of GDP this year -- and sapped resources from liberalization plans.
Finally, despite the positive headlines, Congress won less than 30 percent of the vote and, by itself, just 206 of 543 parliamentary seats. That's a healthy total in a country with 300 active political parties, but it won't have the policy impact of a landslide in a major European democracy -- or an emerging democracy like Brazil. And more than half of the 417 million Indians who cast ballots voted for neither Congress nor the BJP.
Now for the longer-term optimism.
A newly self-confident government will remove plenty more bureaucratic obstacles to economic growth. We can expect timely passage of long-stalled legislation to address reform of pension financing and the banking and insurance sectors. We're also likely to see early progress on funding for health and education. Both are important for a country in which nearly 50 percent of young children are malnourished and a third of the population can't read.
Crucially, there will be renewed focus on infrastructure development in the form of tighter Congress Party control over ministries charged with improvements in roads, oil and gas, power generation, shipping and telecoms. Combined with new investment, this will dramatically improve India's chances for a strong rebound -- and provide a considerable boost for its longer-term economic prospects.
Most important, a government no longer in constant danger of coalition collapse -- and therefore of political blackmail from smaller parties -- will now have a stronger hand with which to negotiate complex reforms that depend on the support (or at least acquiescence) of local officials.
That's a big improvement on the Indian governments we've seen over the past decade. This is why the positive market reaction that immediately followed the election results makes sense.
There's also good reason to expect a more self-confident Indian foreign policy. The new government will continue to avoid direct conflict with Pakistan, despite concerns over that country's deteriorating domestic security situation. With the Communist Party out of the mix, we'll see renewed support for U.S.-Indian trade ties and broader U.S.-Indian defense cooperation.
The longer-term risk for India remains that the BJP's embarrassing loss will amplify the voices of those within the opposition party who favor open promotion of Hindu chauvinism, a major contributor to religious violence within the country in recent years --though polling suggests that most BJP voters are moderate on religious questions. The party finds itself in much the same dire straits as America's Republicans, without credible leadership or a clear sense of how it should rebuild.
Congress now has the legislative clout and political momentum to move forward on an agenda that's been stalled for the past year. There's just one thing this election has cost the ruling party: excuses for inaction.
Ian Bremmer is president of Eurasia Group, a political-risk consultancy. He is co-author, with Preston Keat, of the book "The Fat Tail: The Power of Political Knowledge in an Uncertain World." He can be reached via e-mail at email@example.com.
Elections Give India's Congress Party Clout to Push Agenda | India