Economic Woes Besiege India

Fractious politics, high prices test patience of voters and basic tenets of the socialist system

AT the height of India's most pivotal election in years, Gita Wimal has prices, not politics, on her mind. A long-time supporter of the Congress (I) Party and the Nehru-Gandhi family, the government secretary backed the late Rajiv Gandhi's election bid in 1984 after the assassination of his mother, Indira.

In the 1980s, under economic reforms accelerated by Mr. Gandhi, Mrs. Wimal and millions of other middle-class Indians benefited from eased shortages, a proliferation of manufactured products, and a new legitimacy for consumerism.

Now, weighed down by double-digit inflation, Wimal is fighting mad about the economic and political disarray.

"All these politicians are thieves and thugs," says the mother of two, who is buying less of everything to make ends meet. "Milk, rice, dal [lentils], and oil have gone up like anything. India is in the grip of high prices."

As India stands at a political crossroads, choosing its fourth government in two years, economic uncertainties loom large.

The stormy national election, interrupted by the May 21 assassination of Rajiv Gandhi and rescheduled for June 12 and 15, may be a test of the country's traditional commitment to secularism and easing caste discrimination. But economic troubles facing the Indian voter will have as much influence in shaping the outcome, political observers say.

Socialism, as much a cornerstone of the national creed as secularism, is besieged by a foreign-exchange crunch, rising prices, and growing calls at home and abroad for economic overhaul.

The problems of planning

The path of central planning, charted by first prime minister Jawaharlal Nehru, "is meeting its Waterloo because there is no choice today," says S. L. Rao, an economist with the National Council of Applied Economic Research, a government think tank.

"Higher prices are a symptom of deeper trouble in the structure of the Indian economy," Mr. Rao says. "There's no question that India has to make major structural changes."

Many analysts agree that will require nothing less than an economic revolution in a country characterized by vast gaps between rich and poor, an almost religious commitment to self-sufficiency, and a deep distrust of international capitalism rooted in centuries of colonialism.

Since independence from Britain in 1947, India has pursued an insular system of central planning and erected a wall of protection around its huge market.

The so-called "middle way" built a diverse industrial base and forced Indians to save, keeping them safe from the high inflation and debt ensnaring other developing countries. But the system has also produced a ponderous and rigid bureaucracy, a closed market, inefficient industries, a reputation for shoddy manufacture, and isolation. While India ranks lowest in Asia in terms of imports as a percentage of its gross output, it also ranks very low in the volume of exports.

After succeeding his mother who initiated economic reforms, Rajiv Gandhi further nudged the marketplace: He eased and sped up some licensing procedures, gave a guarded welcome to foreign investors, and lowered income and corporate taxes under the stewardship of his then-finance minister, V. P. Singh. (Mr. Singh later split with his boss over corruption allegations and defeated him in elections in 1989.)

Even the limited changes shook the stagnant economy. They allowed a middle class of more than 100 million people to burgeon, encouraged a generation of new entrepreneurs, spurred industrial growth and exports, and caught the eye of multinational businesses.

Suddenly, the country was in the midst of a consumer boom, as middle-class Indians bought refrigerators, televisions, and other household goods previously undreamed-of. However, the reform effort sputtered in the face of resistance from the bureaucracy and businessmen loathe to give up profitable monopolies.

Meanwhile, the government poured money into a defense buildup and administrative activities. During the 1980s, external debt tripled while internal debt grew to four times that of the beginning of the decade.

"After all these years, India is in a debt trap," says a Western diplomat who follows the economy. "It's a house of cards."

Battered by the Gulf crisis and its dependency on oil imports, India, for the first time, turned to the International Monetary Fund (IMF) for a foreign-exchange bailout earlier this year.

Faced with the need to borrow another $2 billion to repay due interest and principal, leaders across the political spectrum appear to be lining up behind economic reform. Former Prime Minister Chandra Shekhar, a veteran socialist, presided over the first IMF rescue and was planning to sell off parts of some profitable state-run enterprises when his government fell in March.

India "needs to break away from these cliches," says Lal Krishan Advani, leader of the surging right-wing Bharatiya Janata Party. "We need to remove the various controls and restrictions ... and give greater scope for private participation, even in the public sector."

Tough choices

In a climate of political turbulence, economic change will be tough, analysts say. Inflation has soared as a result of higher oil prices, distribution disruptions due to political violence, higher prices for government food procurement programs, and more rupees circulating as a result of an expanding money supply.

Indians like Gita Wimal want action. "The government has to do something about this," she complains. "The government is not doing anything to restrict prices and to control the traders. Now, every person is king."

But consumer expectations which soared in the 1980s might be rudely deflated if the government tackles reform by such measures as cutting food and fertilizer subsidies, tightening collection of utility charges, redistributing grants from higher education to primary education, and shrinking the bureaucracy.

Such strong medicine, Western and Indian analysts worry, could return officials to the failed policies of the past rather than the needs of the future.

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