IHS Global Insight Perspective | |
Significance | The UPA has won a landslide surprise victory over the NDA and the Third Front. |
Implications | The clear victory of the UPA, just 10 seats short of a simple majority, suggests that government formation will be swift, the government will be able to complete its five-year term, and implement reforms. |
Outlook | These developments indicate a shift in Indian politics, and it appears that the increasing fractioning of the political sphere has come to a halt. |
The Election Commission of India announced a surprise landslide victory for the Congress-led United Progressive Alliance (UPA) Saturday (16 May). The UPA secured 260 seats—with the centre-left Congress Party alone accounting for 206—only 10 short of the simple majority and well ahead of the BJP-led alliance, the National Democratic Front, which finished with only 158 seats. The Third Front, a grouping of mainly Leftist parties, some of which were part of the present coalition government and blocked major reforms, only managed to secure 67 seats. Particularly noteworthy is the strong showing of the UPA in Uttar Pradesh where the Bahujan Samaj Party (BSP) failed to live up to expectations to play an important role in national politics, and in the traditionally Communist strongholds of West Bengal and Kerala. The UPA has also been placed in a strong position in Maharashtra where the right-wing Hindu nationalist party failed to significantly mobilise the electorate. In anticipation for a stable and decisive government stock markets soared following news of Congress' decisive victory, with the Sensex opening 17% higher today. It is expected that the formation of the government will now be a swift affair. Earlier today, the Cabinet met to pass a resolution to dissolve the 14th Lok Sabha (Parliament), and it is expected that President Pratiba Pathil will later invite Congress to form the government. It is also anticipated that Manmohan Singh will remain Prime Minister. The remaining 10 seats needed for simple majority are likely to be filled by independents and old allies. It was widely feared that Congress and the Bharatiya Janata Party (BJP) would be in a head-to-head race, with neither being able to secure a share of votes close to the simple majority of 272 seats. This would have given rise to fears over an unstable coalition, composed of a plethora of regional parties with highly specific interests. According to the Indian constitution, the government has to be formed by 2 June at the latest.
Election Results | |
Alliance | Seats Won |
UPA | 262 |
NDA | 158 |
Third Front | 67 |
Fourth Front | 27 |
Other | 30 |
Massive Challenges and High Expectations
The Congress Party has made a resounding return to the Indian political landscape. Manmohan Singh, who served as the country’s Prime Minister since 2004, is an experienced economist who is expected to continue reform initiatives aimed at much-needed economic growth. In the 1990s, he helped initiate reforms that led to India opening its hitherto inward-looking economy to the outside world, increasingly attracting foreign investment. However, during his last term of Prime Minister, Congress-initiated reforms were often blocked by a number of Leftist parties. With a decisive mandate now at hand, expectations are high that constraints on policy implementation will ease. The challenges that the new government faces are significant. The economy faces a brisk slowdown as growth is expected to have fallen below 7.0% in fiscal year (FY) 2008/09 and could even drop below 5.0% in the current fiscal year (FY 2009/10) as the global slump continues. Fiscal stimulus required to support growth is inhibited by the country's structural budget deficit that is expected to widen substantially over the near-term as welfare demands intensify and revenues experience a sharp cyclical drop. Boosting revenue generation to release resources for development spending would require tough reforms to tax laws, but given that the lower income groups, which form the core constituency of Congress' vote, are the hardest hit by the worldwide economic downturn, such reforms are unlikely to be made. In order to make India more attractive for investment, heavy investment is especially needed to improve the country's infrastructure. As the income gap widens across social strata in India, it is essential to initiate pro-poor reforms in order to prevent social unrest and communalism. This includes improved policy on jobs, housing and health and the creation of viable social welfare nets to plug gaps in the market economy. In addition continued liberalisation and deregulation of the economy, which has added propulsion to growth in recent years is required to bolster non-debt creating inflows of foreign direct investment (FDI) into export-oriented manufacturing sectors. India needs to expand its manufacturing base with tertiary-sector driven growth failing to provide the mass mobilisation of employment opportunities required to absorb excess labour from the agricultural sector and accelerate broad development. The prospective government also faces various sources of internal and external security challenges, including a growing Naxalite insurgency that has gripped up to 40% of India's territory. There are also various insurgencies raging in north-east India. Furthermore, relations with Pakistan, not only over Kashmir, but especially over the handling of militants in Pakistan will be key issues to address. This issue is especially pressing after the November 2008 attacks in Mumbai, after which India has accused Pakistan of turning a blind eye to extremism on its territory—an event which saw the gradually improving relations between the two deteriorate sharply.
Now that the UPA has secured a decisive win, it is worthwhile looking at the programme that Congress envisaged in its manifesto, even though many of these aims are vague and will need to be spelled out more concretely in the near future.
Economy
- Spur high economic growth, low inflation;
- Support of small entrepreneurs and to small and medium-sized enterprises;
- Introduction of Goods and Service Tax from April 2010 in order to increase revenues and reduce the fiscal deficit;
- Large-scale improvements in science and technology infrastructure;
- Ensure energy security, including increase in share of nuclear power.
National Security
- Equipping the Indian defence forces with modern equipment and weapons;
- Equipping the police and specialist security forces to better be able to tackle terrorism;
- Introduction of a nation-wide system of identity cards for citizens;
- Initiate police reforms (improvements in distinguishing between executive and administration; better representativeness of composition of population).
Social Policy
- Improve implementation of the National Rural Employment Guarantee Act (NREGA), including guaranteeing 100 days of work for everyone entitled to NREGA for 100 rupees per day;
- Enactment of Right to Food Law, under which every family would be entitled to 25kgs of rice at a rate of 3 rupees per kilo;
- Health insurance for poor families (everyone covered within three years);
- Improvements in education sector;
- Expand on the National Skills Development Mission, aimed at increasing employability of youths;
- Further empowerment of weaker sections of society (scheduled castes, scheduled tribes, women, children, minorities);
- Combating of communalism;
- Connecting every Indian village to a broadband network within three years;
- Massive provision of low-cost housing and sanitation to urban areas.
Legal
- Major judicial reforms to avoid delays in court proceedings.
The budget to be finalised within the coming months will shed further light on the reform initiatives that Congress is really willing, and more pertinently fiscally able, to bring about.
Outlook and Implications
Indian media have predicted a "new era for national politics", and taken the decisive win of the UPA over Hindu-nationalist BJP and a major decline of the Leftist Parties, this may well be the case. These election results have indeed provided the UPA with the ability to follow through with reform packages without much distraction from unruly coalition members, as has been the case during the last administration. Congress will place much emphasis on increasing economic growth, but will be confronted with a dilemma between reducing the country's soaring fiscal deficit to release resources for long-term development and large-scale stimulus packages aimed at reviving economic growth. Socially, Congress has pledged massive spending for lifting the poor from poverty, but the fiscal deficit is unlikely to allow expenses in the range envisaged. Internationally, relations with the United States are likely to deepen, especially as the civil-nuclear deal will go ahead now that the influence of the Leftist bloc has been drastically reduced. Concurrently, the United States is actively seeking to deepen relations acknowledging the important role that India has to play with regard to its new Af-Pak strategy. While relations with Pakistan have soured since the November 2008 attacks in Mumbai, it is likely that India will soon resume peace talks, especially given Pakistan's recent decisive clampdown on extremists. The BJP, as well as the Left Parties and the BSP will have to analyse why it is that they fared so poorly in the election. With regard to the BJP, for example, there is speculation over how the party's reaction to Varun Gandhi's hate speech against Muslims could have alienated much of the electorate, as the BJP failed to distance itself from such statements. Election results suggest that Hindu nationalism appeals only to specific pockets of society. While reasons for the poor showing of the Left are fiercely debated at the moment, it appears that the electorate has been fed up with the Left's role as a "blocking force" for reforms aimed at economic growth. With Congress' promises being vague, it appears that the electorate has provided the party with a vote of faith, and this is something that the UPA will now have to live up to.