India’s Congress Party Defeated in Election as Rahul Gandhi Campaign Flops

India’s ruling Congress is heading for defeat in two key provincial elections, including a rout in the country’s most populous state where leader-in-waiting Rahul Gandhi had staked his reputation as a vote winner.

In Uttar Pradesh, home to 200 million people, the regional Samajwadi Party was on course to win an outright majority in the 403-member assembly, according to data from the Election Commission. Congress was ahead in 27 seats, just five more than it secured in 2007, and will not play any role in forming the next administration. It was also behind in Punjab.

“Voters punished Congress for corruption and high inflation,” said Satish Misra, a political analyst at the New Delhi-based Observer Research Foundation. “Economic reforms will be first casualty as the government’s dependence on aggressive allies will continue. The countdown for early general elections has begun.”

Today’s results determine who leads about a fifth of India’s population and are a verdict on Prime Minister Manmohan Singh’s Congress after he endured one of the most challenging periods of his eight-year premiership in 2011. Corruption scandals and clashes with parliamentary partners have stalled legislation, including plans to allow companies such as Wal-Mart Stores Inc. (WMT) to open supermarkets in India.

‘Go It Alone’

“The tally seems to suggest that the Samajwadi Party may go it alone” in Uttar Pradesh, said Shankar Char, vice- president at ICICI Securities Ltd., a unit of India’s largest private lender. If Congress’ support had been needed to rule the state, Singh could have demanded Samajwadi Party backing for his federal government, easing the passage of policies, Char said.

India’s benchmark stock index declined, reversing earlier gains, as the Samajwadi Party increased its tally and sidelined Congress. The benchmark BSE India Sensitive Index, or Sensex, dropped 1.1 percent as of 3:26 p.m. in Mumbai after being up as much as 1.9 percent earlier.

The Samajwadi Party was ahead in 218 seats in Uttar Pradesh, election commission data showed. Chief Minister Mayawati’s Bahujan Samaj Party led in 86 and she was set to resign her office. The BJP, which led the attack on Congress over graft, was winning in 45 constituencies.

In other elections, Congress was losing a close race with its main nationwide rival, the Bharatiya Janata Party, in the northern state of Uttarakhand. While it retained power in tiny Manipur, the BJP was set to oust Congress in the tourist state of Goa.

Gandhi Flop

The result in Uttar Pradesh is a setback for Congress in what is the most important ballot since the general election nearly three years ago. The state, which straddles the Ganges River, has almost as many people as Brazil.

It was also a personal defeat for Gandhi, who had been supported by his mother, Congress President Sonia Gandhi, and sister Priyanka during an intense three-month campaign.

“It leaves Rahul Gandhi very precariously placed,” said Surjit Singh Bhalla, chairman of New Delhi-based Oxus Fund Management. “He has been completely ineffective, he just has not been able to carry the voters.”

New York-based Eurasia Group said last year that it expects Gandhi, the 41-year-old scion of a dynasty that has dominated politics for 45 of India’s 64 years since independence, to become the party’s next leader in 2012.

Indians took to the streets in 2011 to protest alleged graft in an award of mobile-phone licenses and inflation that stayed above 9 percent for most of the year.

Growth Slowing

Business leaders have called on Singh to accelerate policy changes as growth moderates. India’s economy grew 6.1 percent in the last quarter, the slowest pace in more than two years, as domestic demand weakened and the global recovery faltered. The next national election is scheduled for 2014. Finance Minister Pranab Mukherjee will announce the federal budget March 16.

During Mayawati’s five-year term, she was criticized by rivals for displays of wealth such as raising statues of her political heroes in a state that is home to the highest number of people living in poverty in India.

To contact the reporters on this story: Bibhudatta Pradhan in New Delhi at bpradhan@bloomberg.net; Andrew Macaskill in New Delhi at amacaskill@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net

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