INDIA: Left divided over economic reform

Analysis

Prime Minister Manmohan Singh's Congress-led coalition government is more than 60 votes short of a majority in the 545-seat Lok Sabha, making it dependent on the support of Left parties, which hold 80 seats. This has enabled the Left to curb the government's reformist agenda. In recent weeks, Singh has been forced to:

• withdraw plans to privatise 13 leading industrial public-sector undertakings (PSUs);
• suspend proposals to sell 51% of the equity in public-sector banks; and
• secure parliamentary passage for an Employment Guarantee Scheme, which will cost 8 billion dollars a year (see INDIA: Rural scheme will not solve employment shortage - September 13, 2005).

Party tangles. The Communist Party of India-Marxist (CPI-M) and the Congress are old and bitter rivals. Following last year's election, it proved difficult for the two parties to reach an accord that would allow Singh to govern. They did so largely because of their mutual desire to keep the Bharatiya Janata Party (BJP) out of office. Their accord took the form of the Common Minimum Programme, balancing limited liberalisation measures with protection of parts of the public sector and increased spending on health, education and employment generation (see INDIA: Left will advocate emphasis-shift, not u-turn - May 27, 2004).

In the first year of the Singh government, liberalisation efforts progressed. However, the Left has now begun to assert itself (see INDIA: Left gives government qualified support - July 12, 2005). This has been possible because of:

• the weakness of the BJP, whose internal squabbles have removed it as a contender for office; and
• an eagerness to highlight its differences from Congress in the run up to elections in the Left's regional strongholds in April.

Short-term issues. Nevertheless, the Left's assertiveness is temporary, and the current slowdown in economic reforms is a not fundamental shift in Delhi's policy. This is because a core within the CPI-M has begun to favour liberalisation as a means of 'developing the forces of production', as the party puts it. A prominent exponent of this cause is Chief Minister Buddhadev Bhattacharya, the leader of the Left government in West Bengal. His enthusiasm for reform during the past five years has enabled the state to:

• move from fifth to third place in state rankings of the distribution of national wealth; and
• rise from 22nd to 18th in per capita income levels.

Shifting approach. This is a dramatic improvement on the performance of Bhattacharya's predecessor Jyoti Basu, who was in charge of the state between 1977 and 2000. The CPI-M government at first focused on agricultural development and neglected industry. One result was the decline of Calcutta as an industrial and commercial hub. However, as economic liberalisation gathered pace in the 1990s, state governments gained greater control over their development strategy. Unhindered by central planning, Basu began in his last years in office to revitalise infrastructural development and attract new industries to Calcutta. His successor has gone further by:

• privatising a range of state-owned PSUs in West Bengal;
• curbing the power of trades unions by banning strikes in the local information technology industry, which Bhattacharya is trying to nurture;
• actively seeking foreign direct investment (FDI);
• reducing the state bureaucracy; and
• bringing the state's fiscal deficit under tight control.

Party divisions. However, within the national party Bhattacharya's approach has proved highly controversial:

• CPI-M representatives from less developed states, such as Bihar and Uttar Pradesh, oppose economic liberalisation on the grounds that it will sharpen inequalities among those they govern.
• In Kerala, where the CPI-M adopted economic reforms before losing power in 2004, the party has become a stern critic of liberalisation.

Outlook. Despite divisions within the Left over economic reform, West Bengal's recent performance is a powerful advocate for the cause of liberalisation. The immediate hurdle for the Left parties is the regional elections. Once these are out of the way, the CPI-M will turn its attention to national politics again. In this context, many in the party will seek to position themselves to join a pro-reform government after the next general election, due in 2009. In the meantime, the party will avoid too wholehearted an endorsement of economic reform for fear that it will split the party. Were that to happen, hardliners might desert the CPI-M to join the armed Naxalite revolutionary movement.