They’ve been dubbed “the mandarin and the Madonna”: India’s unelected technocrat prime minister and its elected, but unofficial, Italian-born power behind the throne. Since their surprise election win in May, the “odd couple” of Prime Minister Manmohan Singh and Congress party chief Sonia Gandhi, head of the Nehru-Gandhi dynasty, have set about slowly reforming Asia’s fourth largest but highly shambolic economy.
The return to power of India’s grand old party after eight years in opposition, its longest out of office since independence in 1947, initially had markets afraid reforms would stall and sparked the largest single day fall on the Bombay stock exchange.
But 100 days into its term, the Communist-backed coalition is winning marks for keeping reforms broadly on track, although some complain progress is slow and of a drift in foreign policy, including efforts for peace with Pakistan over Kashmir. “On the general tenor of economic reform, I would give it positive marks,” said economist P.K. Basu, of Singapore’s Robust Economic Analysis. “In general, reforms are going to progress.... But I think there is drift on virtually everything other than economics.”
For a party fresh back on the treasury benches after so long in opposition, the pace of change has been slow, if steady. But much more has been announced than actually implemented and some measures may yet falter. The July budget increased foreign investment limits in three key areas — aviation, telecommunications and insurance. However, details are still being worked out and there are signs of at least a partial rollback, most likely in insurance. So early in its term, the government has yet to make substantial progress in its planned massive increase in spending to help the rural and urban poor that helped bring it to power.
But political columnist Prem Shankar Jha says the Congress-led coalition has performed well given the buffeting it has received from external forces. “This government has had its back to the wall ever since it came to power,” he said. “You have this mad monsoon — too much rain in some areas and too little rain in some areas — and ... high oil prices. This severely limits its opportunities for getting the economy going or increasing investment or creating jobs.”
India’s economy grew 8.2 percent in the year to end-March, making it one of the fastest growing in the world. The government forecasts 7 percent in 2004-05, but most analysts have cut their estimates to 5.5-6.5 percent due to the erratic monsoon. Inflation remains a major concern. It was 7.94 percent for the week to August 14, just off the three-and-a-half year high of 7.96 percent a week earlier, compared with the budget projection of 4.5 to 5.5 percent.
And some analysts are worried by the fiscal deficit — one of the world’s highest at a forecast 4.4 percent of GDP in 2004-05.
With Communist support pivotal for the coalition’s survival, investors have accepted there will be little movement on privatizing bloated and loss-making state firms, analysts say. Rather, the next test of the government’s economic credentials will be its February budget, when economists hope for substantial tax reform, including implementation of a value added tax (VAT) — so far torpedoed many times by the states.
As Singh battles to overhaul India’s massive bureaucracy, cut red tape and reform the economy, he is also struggling to strike a peace deal with nuclear-armed rival Pakistan over Kashmir. Singh and Pakistani President Pervez Musharraf are due to meet in New York next month on the sidelines of the UN General Assembly — their first meeting — to review the peace process. Both foreign ministers will meet in New Delhi beforehand. But Congress’ ability to carry on the peace initiative started by the ousted Hindu nationalist Bharatiya Janata Party (BJP) is unclear.
Gandhi, the widow of former Prime Minister Rajiv Gandhi, was expected to become prime minister after defeating the BJP. But at the last minute she chose Singh, keeping for herself the powerful posts of party chief, leader of the Congress in Parliament, and head of the coalition. Analysts say this creates an unclear power structure that could cause destabilizing tension within Congress. Friday’s Asian Age newspaper reported some senior Congress leaders had already started a campaign against Singh, insisting Gandhi was the one really in charge “and no one should forget it”.
“It’s like Singh is the minister for finance and Sonia Gandhi is the minister for everything else,” said a Western diplomat. “I don’t think this arrangement in its current form will really be stable. The prime minister has to assert himself.”
