Rail fare fiasco threatens to halt Indian coalition government

The Indian government plunges into another crisis by a rebellion within its own ranks over a proposed rise in rail fares.

Speculation has mounted in the media that Rail Minister Dinesh Trivedi's Trinamool Congress party may turn against prime minister Manmohan Singh's coalition, potentially bringing the government down and triggering an election two years ahead of schedule.Show less

NEW DELHI // The Indian government was plunged into yet another crisis yesterday by a rebellion within its own ranks over a proposed rise in rail fares, underscoring its inability to take unpopular steps and frailty in the face of querulous coalition allies.

The latest pressure on the government has fanned speculation that it could fall, triggering an election two years ahead of schedule. However, analysts said most political parties had no appetite for an early poll and - although a midterm vote cannot be ruled out - the government was likely to limp on.

Breaking with years of populist policies, the railway minister, Dinesh Trivedi, this week announced the first increase in passenger fares in eight years, a move aimed at shoring up the finances of a rail network whose dysfunction has become a major drag on the economy.

The move cheered investors but prompted a furious response from Mr Trivedi's own party, a powerful regional group within the ruling coalition that has impeded economic reform in the past.

Amid chaotic scenes in parliament, reports flew that the railway minister had been forced by his party's firebrand leader, Mamata Banerjee, to resign. The crisis quickly cooled, however, as it emerged that he had not offered to quit.

Speculation has mounted in the media that Mr Trivedi's Trinamool Congress party may turn against prime minister Manmohan Singh's coalition, potentially bringing the government down and triggering an election two years ahead of schedule.

"Here is a government literally lurching from one crisis to the next one, and here is a government that seems to be barely able to govern," said the political analyst Paranjoy Guha Thakurta.

Even if the government does cling on, the brinkmanship of unreliable allies is likely to continue, keeping Mr Singh on the backfoot and limiting his room to push through reforms that could lift economic growth from its lowest rate in nearly three years.

"He is weaker than he was even a year go," said DH Pai Panandiker, the head of the RPG Foundation, a Delhi-based think tank. "Any major policy reform will now be very difficult."

Few expect the allies to push Mr Singh over the edge, and even if Trinamool Congress did pull out of his United Progressive Alliance (UPA), he could turn to other regional parties to maintain the parliamentary majority he needs to stay in power.

Nevertheless, the muscle-flexing of an important partner in the government reduces the chances that Mr Singh will be able to cut state spending and deliver the fiscal consolidation needed for the central bank to start reducing interest rates.

Investors will be watching the announcement of the 2012/13 budget today for a signal of the government's commitment to reining in a budget deficit swollen by subsidies for the poor.

The government has been battered over the past 18 months by a string of corruption scandals and Mr Singh, architect of economic reforms 20 years ago that delivered India's economic boom, has been unable to take significant policy steps.

Last year, Trinamool Congress thwarted a plan to allow foreign retailers such as Wal-Mart to enter the country's supermarket sector, tarnishing India's reputation among investors.

That was just one of several policy flip-flops, the most recent of which came over a ban on cotton exports, and fumbles such as its botched auction of a 5 per cent stake in state-run Oil and Natural Gas Corp this month.

The government was further weakened last week when Mr Singh's Congress party was trounced in a state election despite the energetic campaigning of Rahul Gandhi, scion of the Nehru-Gandhi dynasty that has dominated Indian politics its independence from Britain in 1947.