India’s 2012 Elections and Budget: Two It’s All Relative Shoes Dropping Nepotism seems to be the by-word in Indian politics at the moment, but it’s nepotism with Besting the proverbial ―waiting for the other shoe to drop‖ during the first half of a twist. March, experienced not one, but two big shoes dropping with the results of state elections and the unveiling of the 2012–2013 national budget. The first Rahul Gandhi, the Gandhi family’s (and thus, landed with a resounding thump; the second less so. But both will have significant Congress’) heir apparent may have failed to implications for India’s political and economic direction in the months ahead and change the ruling party’s fortunes, but the for the prospects for further advancing the U.S.-India relationship, especially on children of regional leaders have caught the the trade and investment front. attention of the electorate and the results are beginning to show. In , Akhilesh is set to Five states in India went to the polls over the past few months to elect new become the state’s youngest chief minister, a leaders, including its 200-million-person mega-state, Uttar Pradesh (UP). Voter role that is being aggressively supported by his turnout overall was higher than in the past, and female voters came out in father, the current party chief. In Punjab, uncharacteristically large numbers. In all five states, women voters substantially credit for Chief Minister Parkash Badal’s outnumbered men. The results were indicative of the mood of India’s electorate— return to power has been heaped on his son a strong rejection of the status quo and a desire for development, jobs, and a better and Deputy Chief Minister Sukbhir Badal. standard of living. Yadav caught the attention of the nation The big surprise was the shellacking the two national parties, Congress and the during these elections with his enthusiastic Bharatiya Janata Party (BJP), took in favor of regional parties. Most notable was campaigning: most notably, he toured Uttar the Congress Party’s high-profile loss in Uttar Pradesh, despite Rahul Gandhi as Pradesh on a bicycle, the symbol of his the star campaigner for the party and its uniquely dynastic brand of governance. , fleshing out the party Gandhi was quick to assume personal responsibility for failing to increase the platform, shying away from typical communal Congress Party’s presence in the legislature, due to a spectacular showing by the politics, and stressing the party’s vision for Samajwadi Party (SP) and its leader and now rising political star Akhilesh Singh economic development and modernization in Yadav. The SP picked up the majority of seats, at once dashing Congress’ hopes the state. and displacing the incumbent (BSP) and its leader Ms. , who was tainted by numerous corruption scandals. The SP also won In Punjab, Sukhbir Badal emphasized the seats from Sonia and Rahul Gandhi’s home constituencies and , progress that the Shiromani Akali Dal (SAD) staunchly BJP since 1991. coalition had made in the development of the state and—in a drastic departure from politics as usual—made governance and development the only issues the party discussed. A CSIS pre-election analysis framed the upcoming election this way: ―Although the Congress Party is not expected to come anywhere close to winning a majority Rahul Gandhi, on the other hand, campaigned in the UP general assembly this election season, it is trying to gain a significant in both states with no clear platform. number of seats and build momentum for the central government election in 2014. Commentators suggest he was offering the The outcome of the UP election serves as an unofficial referendum on the electorate little but his name. And while that Congress-led United Progressive Alliance (UPA) coalition’s governance over the would have once been enough for the Indian past eight years.‖ (cont’d next page)

2 | U.S.-India Insight | March 2012 public, these mid-term elections have In these terms, the results for Congress were miserable. UP voters signaled that demonstrated a shift away from the traditional they are not excited by the prospect of more government handouts, but want a pandering to religious beliefs and castes, and concrete path to job creation and development. Nor did they feel they were toward issue-based voting. receiving a clear message from Gandhi’s campaign in UP. One journalist observed: ―Indians have no idea of [Rahul Gandhi’s] vision for India’s economy The Indian public appears to be tolerant of in a fast changing world. Mr. Gandhi has been silent on the much-needed public cronyism, but only when their concerns are reforms, without which India will not be able to seize the initiative. His views on being addressed. joblessness, education, the contentious debate over development and the One possible change that Congress may be environment, and affirmative action are virtually unknown.‖ considering after their mid-term failure has been to bring out Rahul’s sister, Priyanka, who seems to be a more adept campaigner and, in As the recent state elections demonstrate, the trend toward the regionalization of appearance, a dead ringer for her grandmother, political parties in India is accelerating. In the struggle for power between the former prime minister Indira Gandhi. Thus far national and regional parties, the latter is gaining momentum, with consequences uninvolved in the party, Priyanka holds no that will have a significant impact on India’s future political and economic formal position, and while she took part in an development. intensive campaign beside her brother in UP, a On the one hand, this regionalization means that voters are placing a high value clear issue-based platform was not obvious to on their particular states’ interests (as opposed to the central government). This the voters. could strengthen states by increasing accountability for local politicians. One This doesn’t bode well for Congress: with prominent Indian commentator noted that there is now a wide political space at Rahul being overshadowed in the elections by the state level for more capable leadership and for more willingness to form the more charismatic Yadav, and Priyanka a effective coalitions. reluctant participant at best, Congress should But the rise of regionalism also means that the central government will likely be learn from the lessons in UP and Punjab. The stymied from making further progress on economic reforms for the next two family name opens doors, but India wants to years—at least the kind that the United States hopes for—because of even more see results. complex coalition politics. The regional parties are not as ―pro-U.S.‖ as the —Ritika Bhasker Congress and BJP have been when in power, and they are more focused on state and local issues. The kinds of reforms that foreigners are hoping for are often removed from the bread-and-butter issues that rural Indians vote for.

On March 16, Finance Minister Pranab Mukherjee unveiled the union budget for 2012–2013 (see Highlights below). The general reception was that it was a ―zero-risk‖ budget, non-populist and non-reform. If adopted, it would raise taxes and slow spending growth to lower the budget deficit and demonstrate fiscal responsibility. He identified a few priority matters, including addressing bottlenecks in the agriculture, energy, and transport sectors; black money and corruption; and chronic malnutrition. But the finance minister did not announce measures to boost the slowing economy nor to allow greater foreign investment in retail, insurance, and aviation.

The five state elections set the stage for other political contests this year that will further define India’s political direction and the prospects for the remaining two years of the Singh government, before the next general election in 2014. There will be two more state elections this year: in April, there will be elections for the upper house of the national parliament, the Rajya Sabha; and in July, both houses of parliament, plus all the state assemblies, will elect the next Indian president, for a five-year term. Many commentators see a rough passage for the Congress-led coalition during this time, including Sheela Bhatt in India Abroad: ―The firm trends of the next two years of Indian politics will emerge after the Budget session of India’s parliament and the election of the new president take place. The BJP is not likely to budge on any issue. Regional ruling parties…will collectively decide the course of political action in the coming months…. That also means that economic reforms, big ticket actions in improving governance or major shifting of foreign policy strategy are out of the question.‖

March 2012 | U.S.-India Insight | 3

But Prime Minister Singh has his own forecast for his government’s prospects: ―There will be difficulties. There have been difficulties, but ultimately if the government is to govern, it must have a sustainable strategy of managing the economy. I sincerely hope when the time comes to take relevant decisions which are tough, we will consult all our allies and take them on board.‖ The question now is when will the time come for the current government to take those tough decisions?

Highlights of the Indian Budget 2012–2013

 Growth is expected at 7.6% in 2012-2013. The economy  Infrastructure will require Rs. 50 trillion (US$995 billion) grew at 6.9 percent in 2011–2012, its lowest in nearly a in the 12th five-year plan and 50% will come from the decade, excluding the financial crisis in 2008. private sector.

 Total expenditure for 2012–2013 budgeted at Rs.  First Infrastructure Debt Fund launched earlier this 1,490,925 crore (US$295 billion). month.

 The budget deficit is to be reduced to 5.1%, a decrease  On social spending: the government has allocated Rs. from the 5.9% this year. 15,850 crore (US$3 billion) to combating malnutrition: a 58% increase from last year, as well as Rs.11,937 crore  Congress will attempt to push the subsidy burden from (US$2 billion) to Mid-Day Meals in schools. It has set 2.4% of the GDP to below 2%. aside Rs. 1000 crore (US$198 million) for a National Skill Development fund and introduced a new program  India has increased defense spending to Rs. 1.93 trillion titled ―Himayat‖ that aims to provide skills training to (US$38.5 billion), a 17% increase. Last year, it rose by 100,000 Jammu and Kashmiri youth in the next five 11%. years.

The CSIS Wadhwani Chair in U.S.-India Policy Studies Amb. Karl F. Inderfurth Persis Khambatta S. Amer Latif Matthew Stokes Senior Adviser & Chair Fellow Visiting Fellow Visiting Fellow Nicholas Lombardo Program Coordinator Sameer Punyani Ritika Bhasker Jesse Sedler Intern Scholar Intern Scholar Intern Scholar U.S.-India Insight is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions; accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s). © 2012 by the Center for Strategic and International Studies.

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