May 16, 2009 / 8:29 AM / 10 years ago

SNAP ANALYSIS: India's Congress alliance headed for victory

NEW DELHI (Reuters) - India’s Prime Minister Manmohan Singh’s left-of-center coalition appeared headed for a second term in office, according to vote counting trends from the election office on Saturday.

Following are some of the possible consequences of a Congress-led alliance victory.

* The Congress alliance appears to have done better than the last election in 2004. If it wins around 250 seats, as forecast, it will be only around 20 seats short of the 272 needed to reach a parliamentary majority.

This means it may be able to call the shots in coalition-building rather than being dependent on the goodwill of a host of regional parties. There is more chance the coalition will last another full five-year term.

* A strong Congress showing is a victory for the youthful campaign of Rahul Gandhi, heir to the powerful Gandhi dynasty and whom many see as a replacement-in-waiting for the party’s 76-year-old prime ministerial nominee Manmohan Singh.

* The election result is also a setback for regional, caste-based parties and the communists who were once seen as indispensable to any coalition formation.

* The result may force the main Hindu-nationalist opposition Bharatiya Janata Party to search for a new leader to replace the 81-year-old Lal Krishna Advani.

* Unfettered by absence of difficult allies, the Congress could push for further liberalization of the insurance, pension and banking sectors, moves that were blocked by its former communist allies. It could also look at stake sales in or listing of some state-run firms to raise resources to fund its development programs.

* It could also use innovative financial instruments as well as some rate cuts from the central bank. The government could also now forcefully ask commercial banks to cut lending rates for monetary policy to make an impact.

* A renewed focus on the farm sector after the rural vote proved decisive for the Congress’ strong electoral performance.

The coalition could build on the success of a rural jobs guarantee scheme and expand its scope to cover the entire country. Higher subsidies for the poor, including cheaper staples, cheaper farm loans, crop insurance and a wider health insurance cover could be on the cards.

This could lead to higher market borrowings which may further push the fiscal deficit beyond the present consolidated deficit of around 10 percent.

* Relations with Pakistan could remain in a holding pattern and the government will make action on the Mumbai attacks a precondition for resuming any peace dialogue. Singh, who is set to return as prime minister, is expected to build on ties with the United States and fully implement a landmark nuclear deal it signed with Washington last year.

The government will push for more say in global economic and political policy-making in entities such as the United Nations Security Council, World Bank and the International Monetary Fund.

Editing by Alistair Scrutton and Alex Richardson

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