What's next for scandal-hit UPA government?

NEW DELHI Thu Feb 17, 2011 2:29am IST

Prime Minister Manmohan Singh is seen in New Delhi February 5, 2010. Singh defended himself on Wednesday against accusations his government had become a lame duck amid corruption scandals that have weakened his ruling coalition. REUTERS/B Mathur/Files

Prime Minister Manmohan Singh is seen in New Delhi February 5, 2010. Singh defended himself on Wednesday against accusations his government had become a lame duck amid corruption scandals that have weakened his ruling coalition.

Credit: Reuters/B Mathur/Files

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NEW DELHI (Reuters) - Prime Minister Manmohan Singh defended himself on Wednesday against accusations his government had become a lame duck amid corruption scandals that have weakened his ruling coalition.

Here are some scenarios for the government.

CORRUPTION CASES SPIRAL, LEADING TO MORE POLICY PARALYSIS

The prime minister is facing a slew of corruption scandals, including accusations that his Congress party-led government lost up to $39 billion after telecom licences were sold to companies at rock-bottom prices in return for kickbacks.

There could be a repeat of 1989, when Congress lost a general election due to the Bofors scandal over gun contracts involving close associates of then Prime Minister Rajiv Gandhi who were accused of taking bribes.

Given that a general election is not due until 2014, Singh may have hoped the current scandals would ebb. But an aggressive media, an assertive Supreme Court and an opposition tasting political blood means momentum into probes has grown.

More graft probes could also increase tensions between the Congress Party and its regional DMK ally, accused by federal police of being linked to the telecoms scam.

The government appears close to agreeing to a parliamentary probe in return for the opposition allowing the parliamentary budget session to operate unhindered from late February.

That probe could see months, even years, of ministers being called to give evidence, overshadowing Singh's second term.

That could halt any reform bills, including land acquisition reform, which attempts to reconcile the interests of farmers and corporate India in a country where tussles over ownership can scupper billion-dollar project.

That may compound investor problems in India. Foreign direct investment has fallen for three consecutive years, from 2.9 percent of GDP in 2008/09 to around 1.8 percent of GDP in 2010/11. Some of this has to do with the global economic slowdown, but regulatory uncertainty is also a factor.

The Congress Party is unlikely to move faster on long-pending economic reforms such as opening up supermarket or financial sectors to foreign investors. The government may introduce changes to the telecoms sector, such as giving more muscle to the telecoms regulator.

STATE ELECTIONS WEAKEN RULING COALITION

If those scandals were not bad enough, the Congress government faces a host of state elections this year that will take the political temperature of an electorate ahead of the 2014 general election.

These include West Bengal and Tamil Nadu, two crucial states that help give Congress a majority in parliament.

If Congress does badly in these elections, it could convince coalition partners it is time to jump ship or at least distance themselves from the government, meaning further policy paralysis.

Congress has a rough 18 seat majority in parliament. If the ruling Congress ally, the DMK, loses the Tamil Nadu election, it saps strength from the coalition.

Many commentators expect a more populist budget on Feb 28, to give the government some chance of doing well in the elections. But more spending on Congress's main social welfare programmes would come amid high inflation and signs of fiscal strains.

That could mean the government failing to deal with fuel subsidies, more cash for food programs as well as education and health. The government bases its plans on jumps in tax collections on high economic growth.

THE PRIME MINISTER GOES

Unlikely, but possible. The 78-year-old Singh is widely seen as an honest elder statesman who plays second fiddle to Congress head Sonia Gandhi, the real power behind the throne. But the scandals may have taken a heavy toll on the prime minister, concerned his legacy is transforming from one of being the founders of India's economic boom to someone who did nothing to stop corruption or policy paralysis.

Singh, who underwent a second heart operation in 2009, could step down some time before the 2014 election to make way for a successor. Sonia Gandhi could also push him out.

While family scion Rahul Gandhi is seen as prime minister in waiting, he is still young and has rejected ministerial jobs in Singh's government - instead focusing on the youth wing of the Congress Party. Some say he is too inexperienced to run India.

That may mean Home Minister Palaniappan Chidambaram, Finance Minister Pranab Mukherjee or Defence Minister A.K. Antony could become prime minister, perhaps on an interim basis.

THE GOVERNMENT RECOVERS

It may be too early to count out the Congress Party, especially with three years to the next general election. It is still the biggest national party and has the Gandhi family name and an extensive network of political influence.

One thing that could bolster the government this year would be a good performance in state elections and there are signs the party or its regional coalition allies could do well, mainly because it is fighting some unpopular incumbents.

Congress is likely to do well in Assam, Kerala and West Bengal states. The latter state election could see the end of the world's longest ruling democratically elected communist government. The opposition is Trinamool Congress, a Congress ally.

It could do well in Tamil Nadu, where its regional DMK ally is under pressure from the opposition but still may win.

Congress can also spend more money on social welfare schemes, such as the rural employment scheme that is seen as helping the party win re-election in 2004. It could also start new schemes such as one giving cheap food grains to the poor.

The government agreeing to a joint parliamentary probe may also take the wind out of the opposition's sails.

"If the elections come off reasonably well and the BJP is robbed of an issue, the Congress can cover some ground. But it has to work quickly. Fast track investigations, convictions -- that will send out a positive message," said political analyst Amulya Ganguli.

THE OPPOSITION IMPLODES

One of the biggest advantages for the government may be the poor quality of the opposition, led by the Hindu nationalist Bharatiya Janata Party (BJP).

While the party has been vocal in its condemnation of corruption, it straddles uneasily between its modern focus and grassroots Hindu nationalism. A failed march by the BJP to place an Indian flag in disputed Kashmir, for example, was widely seen as a political mistake that alienated middle class voters.

Remarks by former BJP telecoms minister Arun Shourie on Monday, which accused senior party leaders Arun Jaitley and Sushma Swaraj of not doing enough to make publicise the scandal, exposed further cracks in the opposition.

The BJP also has its own corruption scandals to tackle in the southern state of Karnataka, where the party is in power. And some of its leaders, like Narendra Modi, chief minister of Gujarat state, are also highly controversial for their alleged role in fomenting religious violence against Muslims.

(Additional reporting by Krittivas Mukherjee and Matthias Williams; Editing by Nick Macfie)

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