India Inc. Frets as Elections Loom

An anti-business coalition could slow the kind of economic reforms that have spurred growth

New Delhi - In India, it's auspicious to have a darshan, a sighting of a god—or in recent times, a celebrity. As election season gets under way, politicians and their retinues of Bollywood stars are giving Indians plenty of darshans. With voting slated to start on Apr. 16—and continue for four weeks—candidates fly into rallies by helicopter, dropping clouds of flower petals on throngs of supporters wooed by the chance to get a free plate of rice and spicy vegetables and sometimes even a wad of cash. One hopeful, a former film star named Chiranjeev, attracted a crowd of 800,000 when he announced his candidacy.

India's business community is less easily bought, but it is facing a conundrum. The ruling Congress Party and its Prime Minister, Manmohan Singh, have been something of a disappointment to business since taking power four years ago. The rival Bharatiya Janata Party (BJP), though, may be too nationalist for the taste of many.

Under Congress, growth has clocked a respectable 8% to 9% annually. But reforms slowed as its communist coalition partners blocked initiatives that would have allowed foreign takeovers of banks, privatization of pension plans, and other reforms. Congress' record has led important business leaders to back the BJP. The party ruled the country from 1998 to 2004 and earned high marks from business for its management of the economy. Its "India Shining" policy welcomed investment, opened up stock markets to billions of dollars of overseas funds, and loosened strictures on foreign ownership in media, banking, and other key sectors. The BJP and its leader, Lal Krishna Advani, also claim to be tougher on terrorism, a top concern since the November siege in Mumbai, when nearly 200 people were killed.

But many Indians fret about the BJP's Hindu nationalism. Advani, for instance, first rose to prominence in 1992, when he led thousands of rioters in the destruction of a 14th century mosque that he claimed sat on a Hindu holy site. And many hold the BJP responsible for anti-Muslim riots in Gujarat state in 2002 that left more than 2,000 people dead.


The two parties are neck-and-neck, with polls indicating neither will get a majority in the 543-seat Lok Sabha, or Assembly of the People. At a minimum, that means the winner will probably have to form a coalition with less business-friendly partners. Another outcome, albeit somewhat less likely: The communists could finish strongly enough to lead a "third front" coalition that might really put the brakes on reforms. They are campaigning on a claim that they were right to resist a host of economic measures when in the Congress coalition. "If we hadn't stopped the privatization of Indian banks, the impact of the global recession would have been far more devastating," says Sitaram Yechury, who would likely head any communist-led government.

The campaign may hinge on how well the parties tailor their messages for India's 600,000 villages, where voters are more likely to turn out than in cities. Even as India has boomed, little prosperity has trickled down to the countryside, so every party must pledge populist goodies such as subsidized food and electricity and programs promoting employment for the rural poor. "You can't fight elections based on concepts of economic liberalization," says Omkar Goswami, chairman of the Corporate & Economic Research Group, a think tank. "What matters is what you deliver. Can you build schools, roads, provide electricity?"

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