Locked in a painful clash, the Congress government, or its welcome new economic reforms, could now fail.
HER voice is high and birdlike. Tiny, she is fond of finger wagging.
Her party, the Trinamool Congress, has just 19 of the national
parliament’s 543 elected members. She offers little beyond vague talk of
the “common man”, and after a year running West Bengal she looks
ill-at-ease in office. Yet Mamata Banerjee feels she is now a
sledgehammer in national affairs.
On September 18th, in a tirade before cameras in Kolkata, she tried
to topple the Congress-led government in Delhi, led by Manmohan Singh.
Crowing that “the whole country is watching us”, she offered Mr Singh a
non-choice between risking swift political collapse or what amounts to a
slow, humiliating policy defeat. Congress’s leaders will probably find
another way out. But India’s already wobbly economy is likely to suffer.
Ms Banerjee, widely known as “Didi” (Bengali for elder sister), said
she would pull her ministers from the coalition government in Delhi and
end parliamentary support for it, on September 21st. Other parties may
be found to back Congress. If not, Congress, with 205 seats of its own
plus smaller allies, would be in a minority. Formally the government
still has until mid-2014 before the next election, but Ms Banerjee
predicts it would tumble in “three or six months” without her.
Her fury is over economic policy. She thrives on fights. The past
year has seen confrontations over rail fares, petrol prices, a water
deal with Bangladesh and foreign supermarkets in India. She is horrified
that Mr Singh and his new finance minister, Palaniappan Chidambaram,
have shown rare boldness by announcing economic reforms. The reforms
were long overdue. Yet it was sadly telling that neither Sonia Gandhi,
Congress’s cagey leader, nor her son, Rahul Gandhi, the tongue-tied
pretender, dared offer the prime minister public backing.
The reforms were supposed to cheer investors in need of encouragement
and tackle a dangerous budget deficit, which this year will easily
breach the official target of 5.1% of GDP. On September 13th diesel
prices went up for the first time in over a year, by 12%. The fuel,
which sells at well below the world price, is heavily subsidised. The
price rise means only the tiniest dent in the deficit. Similarly, plans
to cut subsidised supplies of household gas, which is widely stolen,
would help government finances only a bit. The idea was to signal,
especially to credit-rating agencies ready to recast Indian debt as
junk, that the days of profligacy are over.
The next day brought more. A politically sensitive plan was revived
to let supermarkets, such as Walmart and Tesco, set up in India. The
proposal was advanced last year, but stalled when Ms Banerjee threw her
weight behind objections, claiming that foreign retailers would cost
local jobs. For foreign investors waiting for straws in the wind, it
became a symbolic issue, though investment flows into retailing are
unlikely to be huge. This time round a proposed fudge would let
individual states veto foreign supermarkets, though that may not prove
legal.
Restrictions went, too, on outsiders’ single-brand shops, like
Sweden’s IKEA, selling furniture. The government told foreigners they
could buy minority stakes in domestic airlines. It also said it was
selling equity stakes in state-run firms, to help fill the public kitty.
Investors cheered, the stockmarket rose and Mr Chidambaram hinted at
still bigger changes to come.
Seemingly endless talk about corruption
fell away, a boon for Congress. But the political reaction, led by Ms
Banerjee, only mounted. The opposition parties—the Bharatiya Janata
Party (BJP), the Communists and various regional parties—organised
street protests and vowed to block change. Even a Congress ally from
Tamil Nadu joined the protests.
The BJP, which used its tantrums to stymie the parliamentary session
that has just ended, demands that MPs now reconvene. Its approach looks
risky: middle-class voters may think it is becoming anti-growth. But a
rumour also spread suggesting Congress only wanted more balanced books
so it could afford to dish out goodies in next spring’s budget.
Ms Banerjee’s stock is probably set to fall. Though outspoken, she
also looks untrustworthy and fractious. Yet she leaves Congress in a
bind. If Mr Singh pulls back hard on reforms, he will look craven and
cowed by an ally a tenth his party’s size. Yet becoming a minority
government is awkward too, especially given scandals over corruption and
Congress’s likely walloping in several big state elections next year.
So, as The Economist went to press, Congress
was hunting for a replacement for Ms Banerjee’s support. That may be a
party which is not keen on early national polls. Perhaps parliamentary
backing could come from the 21 national MPs controlled by Mayawati, the dalit (untouchable) leader from Uttar Pradesh.
More likely the current ruler of Uttar Pradesh, the Samajwadi Party
of Mulayam Singh Yadav, with 22 national MPs, might be persuaded to join
if offered a big enough dollop of development funds for the state. One
way or another Congress should hang on. The trouble is that the prospect
of recasting India as open for reforms and higher growth could dim once
more in the coming days. The baffling swirl of Indian politics makes
for a gripping entertainment. But after the drama, will someone remember
the economy and India’s stalled development?
