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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