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|  | MAY 14, 2004
By Manjeet Kripalani A Win for India's Farm Team Rural discontent doomed the BJP. Now, look for likely new Prime Minister Sonia Gandhi to push public works over privatization Wearing a demure white sari with a black border, smiling widely, and holding up her hand palm-forward -- the symbol of her political party -- Sonia Gandhi looked every inch the confident victor. On May 13, Gandhi's Indian National Congress emerged from the closely contested national elections as the largest single party in India's Parliament. Gandhi, the widow of assassinated former Prime Minister Rajiv Gandhi and the daughter-in-law of former Prime Minister Indira Gandhi, is likely to be India's next Prime Minister. The results were a huge upset. The Congress Party and its allies captured 217 of 539 seats, with the BJP-led coalition securing 191 seats and regional parties emerging with 138 seats -- a sizable and potentially influential number, as postelection agreements and alliances are struck to shape the size of the eventual ruling coalition. The new government will primarily be a partnership between the Congress Party and the Communist Party -- the latter entering national elections for only the second time in its history. The mandate for change rode a wave of political sentiment that has swept the country: a potent mixture of rage and disgust at politicians who failed to deliver the benefits of reform to the ordinary Indian, especially in the rural areas. While 65% of Indians depend on agriculture for their livelihoods, the sector contributes only 25% of GDP, and that figure is falling. Very little of the money allocated for rural development by New Delhi actually reaches the poor, usually due to corruption and political and bureaucratic listlessness. And little of the benefits of India's structural reforms in sectors like finance, taxes, manufacturing, and privatization of state enterprises have trickled down to the countryside. WASTE AND INCOMPETENCE. There were other factors, too. Some political analysts questioned whether the BJP based a risky campaign on the premature announcement of India's shining arrival on the world stage, for example. But now that the votes have been counted, the electorate's message is clear: Rural India wants a better life. That's why the agenda of the new government will address infrastructure building across the subcontinent, as well as agriculture reform. While India's national GDP growth was 8% last year and has averaged 5.5% in the past two decades, agriculture has grown at just 3%. Much of this shortfall in growth is due to wasted subsidies and inadequate investment in irrigation. Gandhi, an Italian who married former Rajiv Gandhi, appears poised to be India's next Prime Minister, the first foreign-born leader since Indian independence. Her national origin was an issue in the campaign, and now that she has helped engineer the upset, many still wonder whether a foreigner -- and a housewife for most of her life -- will be up to the task of leading this sprawling democracy. BACK TO THE LAND. The Congress' left-leaning coalition is no fan of privatization or the administrative and bureaucratic reforms that many business leaders think India needs. Labor reform to allow companies to hire and fire more freely will likely be set aside. But other economic reforms will probably continue, albeit at a slower pace. Both the Congress Party -- which claims the title of architect of India's liberalization program -- and the Communist Party pledged that they won't roll back economic reforms. Still, a slower ride on this track could cost India dearly, say some economists, who have been forecasting that instead of growing at the anticipated 10% a year, India might see just 6.5%. The Congress-Communist coalition could make up for the slow growth by developing a huge food-processing industry in rural India, road construction, and building storage facilities. Past Indian governments have done little to tackle reform, but they were inching toward it. The irony is that the defeated BJP, along with the TDP in Hyderabad's state elections, also campaigned on platforms of agrarian initiatives. UNEASY PARTNERS? A McKinsey report argues that, with the right policies, India could become one of the largest food-processing nations in Asia. But success would hinge on involving the private sector to help build the industry, says Subir Gokarn, chief economist of Crisil, India's top rating agency. As it stands now, the state controls 90% of the resources in rural areas. There are already concerns that the new coalition will quickly develop fissures. Never before, for example, have the Communists held such prominence in New Delhi, and a widespread assumption in the capital is that the party will be pushing to increase state involvement in the economy. When the election results became official, Atal Bihari Vajpayee, India's Prime Minister since 1998, submitted his resignation and bid his countrymen an emotional and gracious goodbye on national TV. Sonia Gandhi now smiles sunnily at her triumph. And Indians are once again waiting, watching, and hoping they'll get some results from their government.  Kripalani is Bombay bureau chief for BusinessWeek Edited by Douglas Harbrecht
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