The good news about India’s election results is that the world’s largest democracy looks set to have a generally stable coalition government in an increasingly unstable region of the world. The bad news is what that government might do to the country’s flagging economy.
The ruling Congress party won 206 seats in the month-long elections, putting it and its allies within easy reach of the 272 needed to form a government. The win comes at the expense of the main opposition Bharatiya Janata Party (BJP) and the Communist parties, which lost heavily in their state strongholds of Kerala and West Bengal.
The results put paid to allegations that India’s mostly poor and uneducated voters aren’t politically savvy. The electorate rewarded competent politicians of both the Congress and the BJP and rejected unqualified contenders, such as Bollywood actors. Regional parties that ran on caste or race issues, such as Mayawati’s party in Uttar Pradesh, lost ground. The BJP’s Hindu nationalist platform didn’t resonate either—a sign that a string of domestic terror attacks has failed to radicalize the Hindu majority against the country’s large Muslim minority.
Sonia Gandhi’s Congress-led coalition, led by Prime Minister Manmohan Singh, faces significant foreign policy challenges. Neighbouring Pakistan’s very existence is threatened by Islamic radicals, Nepal’s government is in disarray, and Sri Lanka is dealing with a flood of refugees after its surge against the rebel Tamil Tigers. Singh can’t influence outcomes on all these issues, but he can expand the already strengthened alliance with the US, which he helped forge in his first term.
This election was mostly about pocketbook issues, and the Congress’ victory gives Singh wider latitude to push ahead with economic liberalization. Despite a round of “big bang” reforms in 1991—led by Singh, then finance minister—India’s economy remains heavily shackled, with a state-dominated financial system, high tariffs and a thicket of formal and informal barriers to foreign investment. And yet, commerce minister Kamal Nath said on Saturday that the government didn’t have an “unfinished reform agenda” in its first term.
That’s a misunderstanding of the voters’ message. Most Indians saw their quality of life improve in the Congress’ first five-year term. But that economic development wasn’t thanks to the politicians; it came courtesy of the global economic boom. If anything, the Congress retarded growth by spraying handouts at almost every major voting constituency. That profligacy sent public debt-to-gross domestic product near 80% and the fiscal deficit soaring towards 10%.
The risk is that the Congress interprets its victory as an affirmation of its big-government approach. Singh’s mandate isn’t for more handouts, it is to figure out a way to grow India’s economy. With tax revenues and investment falling, New Delhi can’t afford to fall back on its socialist haunches. Singh knows this; in his first term, he tried to liberalize foreign investment but was blocked by his coalition partners.
Since India began to free its economy in earnest in the 1990s, millions of its citizens have been lifted out of poverty. In the second term that voters have handed him and his party, Singh’s challenge is to do it again.
THE WALL STREET JOURNAL
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