With The Gandhis Gone, Can India's Center Hold?

India's sprawling democracy has been turbulent yet remarkably resilient. But the shocks to its politics and society are becoming more brutal. The assassination of former Prime Minister Rajiv Gandhi on May 21 is the culmination of a wave of election violence, ethnic and religious clashes, and separatist outbursts.

The bombing left Gandhi's Congress Party, the front-runner in India's three-stage elections, without a clear leader. That's after more than a half-century of domination by the Gandhi family dynasty. Hopes that Gandhi would renew his mid-1980s drive to unshackle India's statist economy have been dashed, for now at least. And an upsurge of Hindu fundamentalism is stirring explosive conflicts between majority Hindus and minority Moslems. "This could lead to more tensions with Pakistan," India's militant Islamic neighbor, warns Selig Harrison of Washington's Carnegie Endowment for International Peace. The combative Bharatiya Janata Party, a Hindu nationalist party, is expected to emerge from the election as India's second-largest. It calls for seizing Kashmir, the disputed territory that has triggered two of India's three wars with Pakistan.

It's still possible that a big sympathy vote could give the moderate Congress Party a majority in Parliament. But that will require finding a credible successor to Gandhi from among its mostly colorless senior politicians. The vast election, started on May 20, will resume on two polling days in mid-June after a three-week postponement. Meanwhile, to maintain Congress' dynastic link, the party elected Gandhi's Italian-born widow, Sonia, as its leader.

No matter who wins, the next government will have to start liberalizing India's bureaucracy-choked, heavily subsidized economy. The worldwide shift toward free markets has had little impact so far on the socialist thinking of most Indian politicians. But pressure for change is building. The International Monetary Fund is certain to demand reforms in return for a $3 billion loan India needs to bolster its finances.

FREE MARKET? Gandhi briefly tried to open India's economy after taking over as Prime Minister in 1984. He later backed away from this shift toward a freer market after corruption scandals weakened his government. But the opening attracted a spate of investments by U. S. companies from PepsiCo Inc. to Texas Instruments Inc., and some interest by foreign investors continues. Hewlett-Packard Co., for one, has just expanded its stake in India by investing $20 million in HCL, formerly Hindustan Computers Ltd. Indeed, some observers are convinced that both political and economic forces will push India toward free-market reforms. Along with its Hindu-revival agenda, Bharatiya Janata favors economic deregulation and foreign investment in high-tech and export industries.

Ties with the U. S. will be set back, at least temporarily, by Gandhi's assassination. He was well-known in the West and was on a first-name basis with George Bush. U. S. officials are pondering whether they missed their grand chance to help stabilize the subcontinent by not pushing harder for a five-power agreement by India, Pakistan, the U. S., China, and the Soviet Union to curb nuclear and missile proliferation. The gulf war and other obstacles had put the scheme on a back burner. Now, the risk of conflict between India and Pakistan looks like the old, not the new, world order.

Before it's here, it's on the Bloomberg Terminal.