Not such a big surprise in India

[Louis Proyect <lnp3@xxxxxxxxx>]

(The defeat of the incumbent party might have been predicted based on
this NY Times article from yesterday.)

Indian Voters Turn a Cold Shoulder to High Technology
By SARITHA RAI

BANGALORE, India, May 11 - As India's stock markets slumped further on
electoral uncertainty Tuesday, the resounding defeat of a state leader
who avidly courted multinational technology companies seemed to
underscore a wider discontent among those whom India's economic boom
never touched.

With three-week elections nearly completed, it seemed increasingly
likely that the ruling coalition of Prime Minister Atal Behari Vajpayee
would garner only the same number of seats in Parliament, or could fall
short of a majority, resulting in a more fragile coalition and slowing
economic reform in India.

But driving home the disillusionment with India's technology revolution,
the chief minister of the southern state of Andhra Pradesh, N.
Chandrababu Naidu, and his Telugu Desam party were overwhelmingly
defeated, with the party losing three quarters of its seats in assembly
elections. Besides being a prominent ally in the federal coalition
headed by Mr. Vajpayee, Mr. Naidu was considered a progressive chief
minister and a cheerleader for political reform in his state and at the
federal level.

Mr. Naidu's defeat pummeled stock prices. The Sensex stock index in
Mumbai fell by over 4 percent, to 5,325.90 points, Tuesday. In the last
two weeks, stocks have fallen 10 percent after exit polls pointed to
uncertain support for Mr. Vajpayee's coalition. Mr. Naidu's upset only
underscored that notion Tuesday.

"There is concern about stability as the federal election results seem a
closer call than they did a week ago," said Andrew Holland, executive
vice president for DSP Merrill Lynch in Mumbai, of the rush to sell
stocks. The slump has wiped out some $27 billion of value in Indian
shares in two weeks.

The federal elections results, as well as results of elections in three
more state assemblies, are expected later this week.

According to exit polls after the final round of voting on Monday, Mr.
Vajpayee's government could even fall short of the halfway mark of 272
Parliament seats, forcing him to seek populist parties as partners. The
main opposition Congress Party, led by Sonia Gandhi, the widow of former
Prime Minister Rajiv Gandhi, is gaining, according to the polls.

Mr. Naidu ruled Andhra Pradesh for over nine years, and turned its
capital, Hyderabad, into a bustling technology hub of highways and
gleaming glass buildings that house foreign services companies.

It was at Mr. Naidu's invitation that Bill Gates, the founder of
Microsoft, visited Hyderabad and the company set up a research and
development center there. Microsoft now has 325 employees in Hyderabad,
and other multinationals, like Oracle, Computer Associates and I.B.M.,
have opened there.

Even when Hyderabad became one of India's flourishing outsourcing
centers and its chief minister was hailed as the ''chief executive'' of
Hyderabad, it was obvious that the rural and poorer sections of the
state felt excluded from the technology boom. Analysts said that voting
patterns reflected anger in India's villages.

Despite the creation of better paying service jobs in Andhra Pradesh,
India's rice-growing state, and in the rest of India, more than
two-thirds of the country's one billion people depend on agriculture.
The fortunes of these people are swayed by the vagaries of the rainfall
rather than overseas jobs moving to Indian cities.

So far, foreign investors have been bullish about India's economy,
forecast to grow at over 8 percent this year, pumping $7 billion into
the equity markets in 2003. This year, foreign investment has exceeded
$4 billion.

Some experts said India's scorching growth rates were unlikely to be
affected by the political volatility.

"No matter which government comes in, the economy is growing,
outsourcing continues, people are spending and companies are doing well;
none of this will stop," Mr. Holland of DSP Merrill Lynch said.

"The fundamentals continue to be attractive," said Raja Kumar, chief
executive of UTI Venture Funds Management, the private equity arm of
India's largest mutual fund, Unit Trust of India. Mr. Kumar, who manages
the $60 million fund, said that business had grown independent of
India's politics in recent times.

"Sectors such as drugs, auto components, information technology and
textiles are competitive and well-integrated globally and unlikely to be
affected even by political uncertainty," he said.

India's reform process began in 1991, but the pace has been irregular.
Successive governments have had difficulty in divesting stakes in oil,
auto manufacturing, petrochemicals and other businesses, opening up
sectors to foreign investment and bringing in reforms in labor and
taxation, because of political wrangling and opposition from government
workers.

In the last couple of years the reform process has revved up and
coincided with double-digit growth rates, making the Indian economy one
of the world's most buoyant.

In recent weeks, the ruling coalition of Mr. Vajpayee has claimed as
much of the credit as possible for the country's economic performance
through a campaign called India Shining, which may ultimately have
backfired.

The campaign's critics frequently point out that, while India's cities
may shine in the era of liberalization, its thousands of villages
continue to lack access to schools, hospitals and clean water



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