CONGRESS PARTY WOES CONTINUE

UNCLAS SECTION 01 OF 03 NEW DELHI 001018 SIPDIS SENSITIVE SIPDIS DEPT FOR SCA/INS, DRL E.O. 12958: N/A TAGS: PGOV KDEM PREL PINR ECON PREF CH IN SUBJECT: CONGRESS PARTY WOES CONTINUE REF: A. NEW DELHI 239 ¶B. 07 NEW DELHI 5392 ¶C. 07 MUMBAI 722 ¶D. KOLKATA 88 ¶E. KOLKATA 81 ¶F. CHENNAI 119 ¶1. (SBU) Summary: With little political headway on the civil nuclear initiative and election defeats in Gujarat, Himachal Pradesh, and the Northeast (refs A,B,C,D,E),good news for the Congress Party has been in short supply in recent months. The latest piece of bad news: rising food prices, which threaten to politically neutralize the United Progressive Alliance's (UPA) recently announced, highly populist budget. With the party taking hits on issue after issue from the Bharatiya Janata Party (BJP) on the right and its Communist "allies" on the left, Congress party leaders have become extremely risk averse and are unlikely to take any bold initiatives. A strong showing in the May state elections in Karnataka could turn the tide somewhat. Regardless, a weak Congress Party, fearful of facing the electorate, is likely to hold off national polls until May 2009. End Summary. Congress Party's Newest Nightmare -------------- ¶2. (SBU) As if things could not get worse, the Congress Party is confronted today by a potential fatal development: sharply rising prices of food staples. Due to India's political culture of strong anti-incumbency voting, ruling governments find reelection difficult even in the best of times: witness the BJP-led coalition's humbling ouster in 2004 at the height of its India Shining era. Political parties know that reelection is nearly impossible during times of increasing food prices and Indian political history is replete with examples of governments being turned out due to rising food prices. The most famous case was the Delhi state government losing an election in which the dominant issue was the soaring price of onions. ¶3. (SBU) It is for this reason that the UPA government convened an emergency meeting of the Cabinet Committee on Prices on March 31 amidst a spate of media coverage during the previous days that focused on rising prices. These stories were kicked off by a report that inflation in March reached a 13-month high of 6.68 percent, as measured by the wholesale price index (WPI). (Comment: The Reserve Bank of India's target rate is 5 percent. The GOI uses a WPI to measure inflation, since its version of a consumer price index (CPI) is - by its own admission - of limited use and focuses on cost-of-living adjustments for non-manual service sector workers. The GOI is working to correct these statistical deficiencies by constructing a broad-based CPI basket for urban and rural India, respectively. The spike in the WPI has in fact been driven as much by increases in industrial inputs, particularly metals and fuel, as it is by high global agricultural prices. Regardless of the actual composition of the inflation indices, the average Indian is not happy that he or she has to pay more for a range of basic necessities. End Comment.) After the late night huddle by the Cabinet, the GOI announced a series of decisions to combat the price increases: reduction or elimination of customs duties on selected food items such as edible oils, refined oils, and corn, prohibition of export of non-basmati rice, setting of a minimum export price for basmati rice and other administrative measures to control stocks and trading in food commodities. ¶4. (SBU) As an indication of the pressure being felt by the Congress Party on the price issue, it attempted to shift blame for the food prices to others: its ally, Agriculture Minister Sharad Power, for failing to implement "better agricultural policies;" and Uttar Pradesh Chief Minister Mayawati, for "failure of the state machinery" in that state. Although there may be some small grain of truth to these NEW DELHI 00001018 002 OF 003 charges, the voters will find this quite implausible and remain inclined to lay the blame on the UPA and the Congress Party. UPA: A Favorite Communist Punching Bag -------------- ¶5. (U) The rising inflation reports provoked quick responses from the almost every political party. The Communist Part of India - Marxist (CPI-M),which particularly enjoys skewering its ally, threatened to launch a countrywide campaign on April 15 unless the UPA government took immediate steps to check inflation. Accusing the government of a "neo-liberal" approach, the CPI-M called on the UPA to strengthen the public system for acquisition and subsidized distribution of food, to expand the list of commodities covered by the public distribution system, to reduce prices of oil and gas, and to ban trading in commodity futures, among other measures. The inflation news provided the CPI-M and its left partner the Communist Party of India (CPI) a good excuse for some heavy Congress-bashing as the two parties headed into their party respective conferences in Coimbatore and Hyderabad this week. BJP: Too Little, Too Late -------------- ¶6. (U) The BJP, too, used the inflation reports to launch scathing attacks on the UPA. The BJP spokesman called the UPA steps inadequate and not timely, stating that the half-hearted measures announced by the government would do nothing to check the price increases. He called on the UPA government to take a "holistic" approach to the problem and manage inflation by attending to both demand and supply. The BJP further attacked the GOI for trying to shift the blame for rising prices on international markets and accused the GOI of mismanaging the country's grain stocks, not taking action against hoarders, and "systematically destroying" the public distribution system. BJP: Blasts GOI on Tibet Policy -------------- ¶7. (SBU) The BJP, with momentum after posting resounding wins in Gujarat and Himachal and getting its own house in order, seeks out with relish any opportunity it can find to attack the Congress Party. It continues to use its standard quiver of campaign issues -- pandering to minorities, soft on terrorism and national sovereignty, agricultural crisis, and a weak and indecisive government -- but will also seize other opportunities that present themselves. This week it is the price shocks, which could persist for some time. Last week, siding strongly with the Dalai Lama and the Tibetan people, the BJP blasted the GOI on its Tibet policy. L.K. Advani, Rajnath Singh and Jaswant Singh issued a joint statement accusing the GOI of "blatant appeasement towards China" and of having no regard for "national honor." They called the UPA's Tibet policy "nationally humiliating." They referred to ancient cultural and spiritual ties with Tibet, and warned against India "disconnecting with this linkage." Former National Democratic Alliance Defense Minister and current MP, George Fernandes, recently issued a press release that likened China to "a killing machine," and called upon the "habitually weak UPA government to voice the objections of the people of India" towards China's treatment of the Dalai Lama. The BJP attack on the GOI's Tibet policy is doubly effective because it also highlights the position of Indian Communist parties, which have openly come out on the Chinese side, stating that Tibet is an internal Chinese matter that should not be a subject of comment in India. All Eyes on Karnataka -------------- ¶8. (SBU) With the recent announcement that state assembly NEW DELHI 00001018 003 OF 003 elections in Karnataka will take place in May (ref F),the focus of the political classes will shift to that that state. Like Gujarat, Karnataka will become a bellwether indicating which way the political winds are blowing. Should the Congress Party stumble once again in the Karnataka elections, it will further enfeeble the party as it enters its last year in office. We may see some of its UPA allies trying to distance themselves from the party, much like the communist parties have been trying to do in recent months. On the other hand, should the Congress Party somehow manage to win an absolute majority or fare better than expected in the three-cornered race with the BJP and the Janata Dal (Secular) in the fray, it will go a long way towards reenergizing the party, lifting its spirits and wiping away some of the despair that had set in after the recent losses in Gujarat and other states. Comment: Elections Closer to May 2009? -------------- ¶9. (SBU) Conventional political wisdom in India holds that the weaker the Congress Party, the less likely it is to go for national elections. A corollary is that the weaker the Congress Party, the less likely it is to push for the U.S.-India civil nuclear agreement because of its reluctance to face an early election. The latest news on price increases, therefore, increases the chances that elections will be closer to the May 2009 deadline and does not augur well for any risk-taking by Mrs. Gandhi for the civil nuclear agreement. Comment: Budget Boost Wiped Out -------------- ¶10. (SBU) The inflation surge is doubly troubling for the Congress Party because not only does it pose a huge political challenge in itself, it also wipes off any luster from the unprecedented 15 billion dollar farm debt write-off that the party had offered in its February 29 budget proposal. The falling Indian stock market had already begun to affect a slice of urban Indian voters. The price increases will affect a great many more India voters and reverberate more loudly and widely within the India political system. If the inflation rate persists, we could see the Congress Party resort to massive subsidies and/or price controls, which would put pressure on the budget and economic growth, and further distort the markets. DEIKUN