State polls cast doubt on economic reforms

The electoral rout of the Bharatiya Janata Party in state polls at the weekend has dented its credibility in a military standoff with Pakistan and may sink reforms expected in Thursday's budget.

Analysts and media on Monday declared the result a debacle for Prime Minister Atal Bihari Vajpayee and the BJP, which leads the national coalition government, putting them on the defensive until national polls due in 2004.

"Halfway into its... term, the BJP is now a party in decline," said The Indian Express, in a front page story headlined "For CEO Vajpayee the bottom line is: stocks are falling".

Analysts said the setback is unlikely to influence the tough stand against Pakistan, but could undermine key economic reforms.

"The results will have a negative impact on the rupee. Economic and fiscal reforms would risk being put on the backburner," a dealer at a foreign bank said on Monday.

Stocks are also expected to fall on the BJP's worse than expected performance ahead of the budget, traders said.

Worse than expected

Counting in the BJP heartland and the largest and most politically important state, Uttar Pradesh, as well as Punjab, Uttaranchal and Manipur began on Sunday and continued on Monday. But the extent of the BJP setback is already worse than expected.

The BJP has conceded defeat in Uttar Pradesh -- where it dropped to 107 seats from 157 -- lost power in Uttaranchal and with its Akali Dal allies has lost Punjab.

The big winners are the main opposition Congress Party, which has won in Uttaranchal and Punjab and appears likely to win Manipur, and the regional socialist Samajwadi Party, which is well ahead in Uttar Pradesh.

But no party has won a clear majority in Uttar Pradesh and it will take days of complicated horse-trading to form a government.

Vajpayee and BJP leaders played the nationalist card heavily, warning voters the BJP was best-placed to deal with Pakistan and the threat from anti-Indian Islamic militants based there.

Nuclear-capable India and Pakistan have massed a million men along the length of their border after New Delhi demanded Islamabad close down the militant groups and hand over 20 alleged terrorists and crime dons.

Foreign policy won't change

Analysts say India's traditionally tough policy against Pakistan, with which it has fought three wars, will not change.

"Foreign policy seldom changes with change in governments let alone changes in state governments," political analyst Prem Shankar Jha told Reuters.

He added New Delhi could not back down against Pakistan because there was no evidence Islamabad was honouring a pledge to crack down on the militants.

"They have flatly refused to give up the 20 terrorists and there is no evidence of a fall in jehadi (militant) activity because of the snowfall in the mountains," Jha said.

India has said it will not pull back its troops until there is clear evidence of a substantial fall in the number of rebels sneaking across the border, mainly into disputed Jammu and Kashmir state where winter snows currently restrict movement.

Rather than Pakistan and militants, the message from voters in the state polls was that they are more concerned about living standards, jobs, graft and basic services.

Power to partners

Thursday's budget is largely complete, but the state results now give the BJP's coalition partners more power and will make it harder to push through reforms to boost growth and fight poverty.

"The BJP's electoral debacle is unlikely to bring down the curtains on the Vajpayee government, but it is certainly a blow... and reduces the prime minister's elbow room to push through an ambitious reform agenda," said The Economic Times.

"The results also mean that Mr Vajpayee and his BJP colleagues will be forced to display greater sensitivity to the wishes of allies.

"...the allies might be in a better position to force rollbacks of prickly issues like subsidy cuts and (a) rail fare hike."

Economic growth is estimated at 5.4 per cent in the financial year ending in March -- high by developed country standards but too low to tackle poverty in the world's biggest democracy.

BJP leaders tried to brush off the outcome.

"The result will have no bearing on the stability of the government at the Centre," Telecommunications and Information Technology Minister Pramod Mahajan told reporters on Sunday.

National elections are not due until 2004. But the losses mean the BJP is set to rule only four of India's 29 states.

Control of Uttar Pradesh, the Hindu heartland on the fertile Gangetic plain, with a population of 166 million people, has traditionally been seen as key to control of the country.

Reuters

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