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Posted by on Mar 7, 2012 in Business | 0 comments

Dampened Congress may drag India to a period of economic instability

If the drubbing that Congress received with the results of 5 state elections was any indication of the trend to follow till 2014, Congress may well be out of power in the next 2 years. While it retained Manipur and just managed to claim government in Uttarkhand, it lost heavily in Punjab & Goa and in UP it was just short of a disaster. If political equations get more complex, then UPA can be unseated even before it completes the term. What this means to the country’s economy which is already going through a tough phase is critical.

While other parties too performed badly in Uttar Pradesh, Congress stands out as the biggest loser. It is because of two reasons. One, its prime crowd puller who was widely banked upon to deliver and revive the party in Hindi heartland, Rahul Gandhi, has failed miserably. That will seriously dent Congress’ position on he leading the party and in governance and he may not enjoy the same confidence from the stakeholders. Two, his family which has lead the party for 7 decades has been veritably rejected by the people of Uttar Pradesh. In spite of star-powered campaign led by Rahul, his sister, his brother in law and his mother, Congress has manged to win only 2 out of 10 seats in the historic strongholds on Amethi and Rae Bareli. That will hurt Congress in the worst way it can.

With SP forming a government on its own, Congress cannot co-habitate with SP for a symbiotic arrangement at the centre. It means UPA’s dependence on mercurial Mamata will continue, something that is not good for a reformist government. Congress stands a good chance of being isolated in the budget session of Parliament, presidential election later this year and other ambitious socio-economic legislative proposals.

With economy reeling under inflation and unhealthy global climate, tough measures were required from the government. FDI in retail, decontrolling oil prices, widening of tax network, reducing subsidies were all part of the list needed to stabilize growth and fiscal deficit. With changing dynamics of politics, that may no longer be possible now. Congress will be forced to present a populist budget and a slew of conservative schemes pushing the economy further back and putting industry under tremendous pressure. Investor sentiment will be hurt and will drive institutional investors to be skeptical.

Any policy change will demand a mammoth evolving of broad political consensus which will be unprecedentedly difficult for Congress to breakthrough. UPA government is likely to enter a period of hostility & isolation and may well drag the country to a period of instability. News@indiandragon hopes that the government finds drive to weather the storm and prevents the economy from crash landing.