Congress victory in India and its political, economic impact on the Asia and the Pacific


What does it mean by a Congress victory in India?
A politico-economic perspective


With the Indian National Congress (INC) winning an overwhelming victory (securing 206 seats in the 543-seat assembly) in the recently held Lok Sabha election, economists have started figuring out how the international and regional economy and trade regime would look like under the Congress-led United Party Alliance (UPA) government, which faces mainly twofold challenges: to keep pace with its growth rate, probably a double digit one, and to satiate the expectations of impoverished rural Indian lots, who in average live on less than 2$ a day.

A cursory look at the earlier stance of the party and its election manifesto reveals that as a mixed economy Congress dominated Indian government in the next five years would focus its investment on social/physical infrastructure development (esp in backward regions) and on foreign trade coupled with increased cooperation with the United States. Indian Congress leaders during their electioneering had promised to push for heavy rural sector investment.

India, as indicated by its election manifesto, will continue providing subsidies to the agricultural sector and also lobby for the free trade regime as envisioned by the WTO and SAFTA. However, INC perception is that just as countries like India seek to integrate themselves closer with the global financial and trading system, “there has been a re-birth of protectionism in the West”. It should be noted that there is a negative perception in India about the World Trade Organization (WTO), a perception that was further strengthened as its agenda was sought to be expanded by the United States and the European Union beginning in 1995-96.

INC leaders, including its party head Sonia Gandhi, has been criticizing that the developed countries are lagging behind when it comes to meeting their commitments on global trade regime. In that context, India seeks to centre its economic diplomacy in areas like agriculture, textiles and services.

India’s lobby for free trade is likely to be bogged down by developed country’s objection on the child labour issues prevalent in India. Reports of child labour abuse are not new things in India’s agriculture and manufacturing sectors.

As the US -- under the Bush administration in the past decade and now under Obama administration -- has come closer to India through the NUCLEAR DEAL, New Delhi under INC-led government can be expected to further broaden bilateral trade areas and economic cooperation. A flush out of the Indian Leftist parties such as Communist Party of India (Maoist) in the Lok Sabha elections also caters more accurately to the US desire. Along with its collaboration with the US, India will exert pressure to the US and other developed countries to use WTO as a means to help India, in the name of a developing country.

In South Asia, India would try to pump both its products and influence, as it has been visible when it comes to its clout in Nepal, Bangladesh, Bhutan, Burma and others.
Some of the things are discernible today: INC’s government would also focus on development of fisheries sector. Assistance will be given to the fishing community for deep sea fishing and processing and export, the Congress manifesto reads.

Similarly, it is most likely that the INC/UPA-led government would start some ambitious power sector projects. A significant chunk of that power is expected to come from Nepal, where a dozen of Indian hydropower projects are under way on Build-Own-Operate-Transfer (BOOT) agreement. The three of the major Himalayan rivers in South Asia flow through Nepal. India’s heavyweights in hydropower such as Jindal Steel and Power Limited, GMR and Sutlej Jal Vidyut Nigam have won bids of major hydropower projects in Nepal. And given the heightened Indian concern over the political developments in Nepal, it is almost sure that Congress has a lot more to gain from the small northern neighbour.

INC’s victory while glob[e]al melt[s]down
The challenges posed by the global meltdown are daunting for INC and the UPA, which also indicates what shapes their economic programs would take. While fighting the global financial crisis, India so far has been successful in reining in inflation and managing external finances.
Congress leader Pranab Mukherjee, who is said to continue to be the Finance Minister, is apprehensive of the challenge. “We shall have to prioritize for the economy to be brought back on the rails,” said Mukherjee in a brief talk with journalists after his party’s victory in the elections.

Major worry at hand for INC is job losses due to the current economic crisis and return of Indian labor from foreign countries. Thousands of Indians including skilled labours, who had been employed in various foreign countries, especially in the developed countries, who have lost their jobs, are returning to India. Not only has this affected the contributions of the non-resident Indians to the Indian economy, but has created the problems of rehabilitating them.

To tackle this India will introduce some major economic boosters and stimulus packages. As it has declared prior to elections, INC will, among others, focus on creating job opportunities within the country through greater flow of loans and infrastructural investment. Indian’s vibrant banks both in cities and rural areas would be promoted for this job. INC has already declared to make special arrangements of food, job, and housing and transport facilities to the poor and excluded.
In addition, the INC has been stressing that a boost in domestic consumption is the need of the hour, which is expected to be manifested in rise in pay-scale and investment in rural infrastructure and social security. However, INC will take private sector together in this campaign. Congress dominated UPA has already shown green signal to the entry of American insurance companies.

Implication of INC victory on economy and other regional issues
It is most likely that INC’s policy of developing closer economic and military ties with Japan, US and ASEAN nations will be a new energizer for India in the next five years. This development, however, could become a possible source of China-India fraction. For some of developments in this regard would also go against the interest of China.

It can also be predicted that growing India-ASEAN navel cooperation will put a dent on China’s maritime interests, thereby bringing to fore the territorial disputes with littoral nations. INC has been looking with interest the possibility of capitalizing on the Sea Lines of Communication (SLOCS). In the heart of INC policy lies a plan to build a port at Dawei in Myanmar as a major component of its future security strategy for the region. It is also planning a gas pipeline to India from Myanmar via Bangladesh, or direct from Myanmar to northeastern India. One implication of this is the competition between India and China on matter of energy -- at a time the two economic giants strive to achieve double digit growth rate.

There are however possibilities of bilateral and multilateral cooperation on major economic issues such as the impending energy crisis could lead to the birth of mega projects on energy sector. Both China and India are sure to face the energy crisis while fueling their competing growth rates. A mega project so named Pan-Asian Gas Grid linking India, Iran and China’s Yunnan Province could possibly get its shape under INC rule provided the Sino-Indian relations went on grooming as it has been under Manmonan Singh.

However, besides all this, what is also undeniable and unavoidable is the US role. Assisting India to become a “Major World Power” in the 21st century and at the same time assisting Pakistan in attaining security and stability is now official US government policy. Regarding US comfort in dealing with the Rightist Indian party like Congress, it can also be projected that under the Congress-led government the US would be further engaged in drawing India into areas of Chinese influence. A ten-year India-US Defense Cooperation Agreement and the Manhoman-Bush Joint Statement of July 18, 2005 stand as the testimony to that effect. It should be worth noting that more than 50 percent of oil that China imports from outside (esp. Middle East) comes via the route of Indian Ocean.

Congress has also a penchant -- which has been articulate in the Congress-led United Party Alliance (UPA)’s Common Minimum Program (CMP) -- for deepening ties with Russia and Europe and close economies and political ties with South Asian Neighbors. The CMP -- which will continue -- entails the main thrust of India’s foreign policy “to secure India’s strong position in a rapidly changing world order”. To achieve that, the Congress-led Indian government would “protect core national interest and concerns, preserve autonomy of decision-making process, establish a stable, secure and prosperous global order and carry out economic diplomacy”.
Upon his reappointment as Prime Minister of India, Manmohan Sing himself said that India’s foreign policy was driven by “economic interests, with the US and China emerging as the country’s leading partners.” Statistical trend in the past couple of years showing bilateral trade reveals that China is soon going to be India’s largest trade partner. In 2004 India’s total trade with China crossed US$ 13.6 billion with export to China shooting up to US$ 5926.67 million.

Implication on counter-terrorism
India’s experience in counter-terrorism would be one of the key areas of interest to China in the UPA government because Congress has articulated a “regional cooperation of counter-terrorism”. The Congress led government could benefit China particularly in fighting Uighur separatism in Xinjiang. Other benefits are likely to come from the promotion of tourism, including across the border with India, and expansion of international support to China’s “One China policy”. Notable at this is that the same Congress-led government in 2005 had released a China-India Joint Statement in New Delhi expressing India’s high regard to “One China Policy” and as it has already been said the INC-led government will make no changes in that. Pakistan, Bangladesh, Nepal, Sri Lanka have openly supported the One China Policy.

Besides, INC victory also indicates that the region will be more peaceful than ever before. First, the election results have promised a stable Rightist government in India, which will have more time to focus on counter-terrorism issues. Second, the INC victory has been also in favor of US interests in the region. The victory of Congress-led UPA has also promised the US a meaningful support in diverting Pakistan’s focus from antagonism and war with India to a real and result oriented war with the homegrown Taliban. This ultimately means a milestone in regional security issues.

INC victory and its “Middle Path” Economy
INC is quite balanced in its approach as it tries to make headway both in its international trade and relations (including security issues), and in intra-national homely issues such as the challenge of tackling poverty and promoting development. The NCP’s election manifesto puts the concept of development in clear lines: “by development, we mean overall development of the life of the common man including the weaker sections of the society in as much as it provides a better life for them, better housing facilities, better food, better clothing, facilities for giving better education for their children, and better health facilities.”

INC believes that all these depend on “more earnings or remuneration and so the economic development should provide for more employment opportunities and more employment generation schemes and projects.”

Unlike the CPI (M), Congress would choose the “Middle Path”, which goes in sharp contrast with the Indian Left parties. A better grip of CPI (M) in the elections would have pressurized for no further tariff cuts in agriculture and industrial goods and to restore measures to protect small and marginal peasants, including quantitative restrictions. Left victory would have kept sectors like health, education, water resources, banking and financial services out of GATS; pressed for review of the TRIPS agreement and review of existing Free Trade Agreements (FTAs) and made public India’s negotiating positions in the FTA negotiations with EU and EFTA.
In contrast, balance or the Middle Path -- which has been the hall-mark of the policies of the Congress -- will put India focused on maintaining equilibrium between promoting employment in the organized sector and protecting livelihoods in the unorganized sector.

As the world experiences a severe recession, INC will “strive for a balance between the public sector and the private sector, with an important role assigned to cooperatives and self-help groups”. “It is a balance between building a modern economy and imparting a new thrust to traditional industries; and it is a balance between addressing the needs of urban India and improving the quality of life and standard of living in our villages and towns,” reads the INC manifesto.
(The writer, an APLP East-West Center fellow for 2008/09 can be reached at kamal.sigdel [at]

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