In May, the Byzantine-like Congress Party stunned India watchers everywhere by screaming back to power in the polls.

Most observers hadn't given it any chance of success. They argued that Congress was so old, so demoralised and so defunct that it was doomed - yet again.

Even the Hindu ultra-nationalist Bharatiya Janata Party (BJP) of then Prime Minister Atal Behari Vajpayee had been cocky about slamming the last nail into the Congress coffin.

Then came the rout. Congress gutted the BJP and its National Democratic Alliance to form the government. Incredibly voters tossed out a government on whose watch the economy has become the darling of international investors.

In fact India had given free-market dogmatists greater efficacy of their Holy Grail since the collapse of the Socialist bloc. No? Consider the free-market gods - they almost fled when Congress romped home, thinking all market reforms would die with the BJP's ouster.

But the gods came back in droves when Manmohan Singh was installed as prime minister after Congress leader Sonia Gandhi had dithered over assuming the role herself. She caved in to pressure from the xenophobic BJP, which had mounted a vile racist slur against her on account of her being a Catholic Christian Italian and not 'Indian' born and bred.

Unlike the secular Congress, the BJP had ruthlessly exploited race, caste and religion to propel its leaders to positions of insidious power and monetary wealth.

Still, Singh, at 71, is hardly a compromise candidate. He has credentials, and the free-market gods love him. He is famous for designing India's economic reforms from 1991-96 as finance minister. He will be famous now for becoming the first Sikh, and the first economist, to lead India.

Jeffrey Sachs, the international development expert at Columbia University in New York, couldn't contain himself. He called Singh the best thing to have happened for India's reforms. So much for sliced bread.

In the early 1990s, Singh had saved India from financial meltdown amidst a chronic balance-of-payment crisis and severely depleted currency reserves, due mainly to sharp hikes in world oil prices. India had defaulted on its foreign loans, and its economy teetered on the brink of collapse.

Mute on direction

If the free-marketeers love Singh, will the teeming millions of poor Indians and Congress' leftist allies as well? Singh has his job cut out for him.

For starters, although Sonia has taken a backstage political role, Singh's future hinges on her ongoing support. Singh will also need to convince Congress' powerful Central Committee that he has the will and vision to put the party and nation on a more equal footing. And he will need to prove to Sonia's frustrated supporters that their marginalisation by the BJP's 'India Shining' economic policies will be reversed. The markets are again edgy.

So, will Congress change policies to appease its leftist allies in the United Progressive Alliance (UPA) that it leads? On balance, Congress forms only a minority government. To stay in power it will crucially rely on its allies who, in turn, want several of the previous regime's pro-free market policies wound back.

Two months after the polls, Delhi has not signalled its economic policy. The July 8 budget was to reveal if Congress would go for populism or sustainable economic growth. Singh has been curiously mute on this front, even if the leftists' political power has waned significantly. At end May the UPA moved swiftly to raise the price of petrol, diesel and cooking gas - without popular political revolt.

But bigger problems lie ahead for Congress. The ones to feel and react to policy flip-flops will be India's 200-300 million strong middle class. They have been the main beneficiaries of the BJP's market reforms. Those reforms, however, shoved aside some 500 million of India's urban and rural poor who continue to live in wretched poverty.

Roughly 70 percent of India's labour force works in agriculture, which has suffered from low world commodity prices and general policy neglect of a sector that contributes 25 percent to India's gross domestic product (GDP).

The plight of the poor beckons even more when set against India's annual average growth rate of 6 percent over the last decade (it reached a smidgen over 10 percent late last year, surpassing that of China).

Yet there are no signs Congress wants to slow down India's GDP, at least not without hurting the economy's main drivers. And that's just the problem. Opportunistic tempering could easily spiral into economic and social disaster if done in political haste in a bid to appease Congress' chief allies. Sonia and Singh have vowed to keep growth sprinting along, but India's poor will savage Congress and the Left if little or none of the GDP reaches them and soon.

Funding policies

Congress has been mooting the Common Minimum Programme (CMP) just as the BJP had marketed its 'India Shining' canard. Both can be likened to Moses' tablet of fire.

Congress says it will commit Rs1,93,000 crore to education, health and a job guarantee scheme over the next five years. The latter is a programme to put Indians back to work for a minimum of 100 days a year, earning a minimum of 50 rupees a day - the scheme could cost at least US$6 billion.

If the budget proves anything - despite the hype by India's press - it is that Congress is vaulting for populism by making some investments here and there and steady dis-investments in profitable public companies while backing off the privatisation lever for now. If the budget plays to politics this financial year, a crunch by budget time next February is not unlikely.

Still, such wild-and-woolly social promises are only expected from any incoming government anywhere. While it all looks hunky-dory on paper, the big question remains: how will these policies be funded? Until the budget, Congress had sidestepped questions like this. It will probably sidestep it for a good while longer, until all the sums add up.

And if it is not careful, it will soon start behaving like most Third World states, exercising humbug and recklessness by overspending until budget deficits almost bankrupt the country, even as political instability percolates into popular dissent. Think Venezuela, Zimbabwe and dozens more like those countries.

Responsible government and accountability for good governance may easily play second fiddle. While announcing the CMP, the budget also vowed Congress' determination to slash fiscal deficit, from Rs1,12,000 crore in 2003-04 to zero by 2009. Time will tell.

But Congress' policies like the CMP mean that the fiscal deficit, already at 10 percent of GDP, will be ratcheted up more. And tax receipts are lower now than a decade ago. This means taxes for the upper middle and upper classes could go up.

Excise duties have risen from 8 percent to 12 percent for industries like steel, and value-added tax on all services from 8 percent to 10 percent. Delhi also plans to raise foreign direct investment caps for telecoms from 49 percent to 74 percent, aviation from 40 percent to 49 percent, and insurance from 26 percent to 49 percent.

The bottom line is that Congress will have to fund its policies. Raising revenue while slashing spending with a politically attuned ear seems the fit for this financial year. And if it runs short of cash, Delhi can opt to borrow, though probably not from within India's dubious financial market. That leaves options of either printing money, which risks inflationary pressures, or borrowing from international financial sources, which Singh will have to think hard about amidst the potential climate of global interest rate hikes.

Even if India's fiscal position mellows the likes of Standard and Poor's to give it another credit rating star or two, Indian taxpayers could end up paying dearly for costly and politically motivated social policies of the kind being bandied about. This means Singh and the Congress-led government must come clean on costing its CMP and ensuring transparency of all its policies. Nothing less will do. Unlike the BJP's recklessly spendthrift ways, Congress seems bent on fiscal consolidation for this financial year anyhow.

Sustaining growth

Another possibility is that Delhi could drag state spending away from non-development expenditure. It may even slash consumption expenditure, including heavy state subsidies. The money saved may be diverted to programmes that in the long run boost GDP, thereby expanding the tax-revenue base for the state's coffers

All this is easier said than done, though. One doesn't have to be a Sachs to know that Third World countries need not only policies that crank up GDP through strategic industrial and investment policies, but also concomitant re-distributive policies so that economic growth reaches the lowest rungs of society more equitably.

Throughout the BJP's reign and its 'India Shining' humbug, the reality remains that about 500 million Indians live in vicious poverty. Over 40 million are chronically unemployed, the situation worsening as the labour market grows at 2.5 percent annually. Under-employment is bound to worsen, too.

Meanwhile rural-urban migration has lent to the hollowing out of Indian agriculture and agricultural incomes. Poverty is further embedded within and especially on the margins of cities and townships among the new urban fringe dwellers. The list of problems facing India is endless.

Singh, Congress and the UPA need to get their heads around social and economic policy priorities and refrain from putting up the political calculus first. They will have to be more honest and open than the BJP ever was.

India's incompetent, corrupt and red-taped bedevilled bureaucracy will need to be radically downsized and reformed. Under- and uneven development must be tackled head on, and more imaginatively. New infrastructure must be built and crumbling ones rebuilt if GDP growth is to be sustainable.

'India Shining' was the BJP's sleight-of-hand. It's dead, thankfully. So too are old economic development models. India needs broad-based stakeholder capitalism. Let's see if Singh has the mustard for producing real change for all.

MANJIT BHATIA, an academician and writer, is also research director of AsiaRisk, a political, economic and risk analysis consultancy in Australia. He specialises in international economics and politics, with a focus on the Asia-Pacific.