Sonia Gandhi steps in to bolster troubled Congress

The current matriarch of the Gandhi family is usually more concerned about social welfare - so it is a sign of the times that she gave her blessing to the opening up of the Indian economy in retail, airlines and broadcasting to the markets.

Sonia Gandhi, as Congress party president and torchbearer of India’s widely revered first family, has the last word on big policy issues.

NEW DELHI // It had been a brutal August for India's Congress party: economic growth was wilting, the monsoon rains were failing and the opposition had it cornered on yet another corruption scandal.

In stepped Sonia Gandhi to revive the morale of the ruling party, exhorting them at a meeting to "stand up and fight, fight with a sense of purpose and fight aggressively". It was an assertive speech from the normally temperate matriarch of a dynasty that has ruled India for most of its post-independence era.

Yet few at the gathering were aware that, just a week earlier, she had performed an even more dramatic about-face, agreeing to a raft of economic reforms that would be unveiled on September 13 and 14.

Mrs Gandhi has no official government post, but as Congress party president and torchbearer of India's widely revered first family, she has the last word on big policy issues: and for her, social welfare has always come before liberalising the economy.

A dozen officials and party leaders close to the secretive inner circle of the Italian-born leader said Mrs Gandhi was persuaded of the need for urgent action to avert a repeat of the crisis that took India to the brink of bankruptcy in 1991.

"This time there was a very grim scenario," said Rashid Kidwai, a Sonia Gandhi biographer who was given an account of the arguments made over weeks by prime minister Manmohan Singh behind the closed doors.

"It's not that she wanted to go for all this, but it was made very clear to her that, if she didn't, there would be far more dire consequences."

Sources said the trigger for the reform campaign came with the return of P.Chidambaram as finance minister on August 1.

The Harvard-educated technocrat replaced Pranab Mukherjee, a left-of-centre Congress stalwart who had consistently warned Mrs Gandhi against radical reforms.

Her acquiescence in the end led to this month's "big bang Friday" when, a day after taking an axe to costly subsidies on diesel, the government announced that the retail market would be opened to foreign supermarket chains and the bar on foreign investment in both airlines and broadcasters would be lifted.

These were the most sweeping reforms since Singh took office in 2004 and - in the space of 48 hours - they dispelled the image of a prime minister who was losing his mojo.

Insiders say Mrs Gandhi remains instinctively wary of liberalisation and trimming the budget deficit. For months, she had held out against cutting fuel subsidies.

She only agreed when Mr Singh and Mr Chidambaram explained that new growth generated by reforms and improved investor sentiment would have a trickle-down effect and provide funds for welfare spending in time for elections due by mid-2014.

But party sources said Mrs Gandhi will now focus on passing a bill on universal food security in December.

"She just wants enough budgetary resources available to finance her welfare schemes," said Swapan Dasgupta, a prominent journalist who leans towards the opposition.

Mrs Gandhi, 65, carries the authority of a political family that, after India won independence from Britain in 1947, drove a vision of democratic socialism to uplift the vast rural masses. With that came a mind-boggling range of controls that tied the economy down and kept it closed to global markets.

A turning point came in 1991 when Mr Singh, then finance minister, devalued the rupee by nearly 19 per cent. Further moves to prise open the economy set the stage for a long run of dazzling growth that peaked at 9.7 per cent in 2006/07.

Although Mrs Gandhi appointed Mr Singh as premier when the Congress party returned to power eight years ago, she has a far more socialist mindset than the Oxford-educated economist who drove that first round of reforms. Mrs Gandhi initially declined the throne of Congress after the assassination of her husband and former prime minister, Rajiv, in 1991 but she agreed to enter politics six years later to lift the flagging fortunes of the party under her family's brand name.

As party president and chairwoman of the ruling coalition, she has kept a low and almost enigmatic profile, appearing to stand above the political fray. When she went abroad for surgery last year there was no official word on her illness, and the media accorded her the sort of privacy a royal might expect.

But Mrs Gandhi wields extraordinary power behind the scenes, shaping policy out of the public eye with a tight circle of decision-makers and relying on back-channel negotiations to manage relations with fractious coalition allies.

She gives little away about her thinking on economic policy, but dispatches from the US Embassy in New Delhi during the early years of Mr Singh's tenure show she made "repeated objections" to proposed rises in fuel prices.

Described as a leader who projects herself as a benevolent matriarch, the dispatches were scathing about one of her pet projects, a scheme guaranteeing 100 days of paid employment per year for rural citizens. "At worst, the jobs plan is political patronage run amok and horrid economic policy," one said.

How was Mrs Gandhi persuaded that, as one government official put it, "if you are not growing you are distributing poverty"?

For one thing, the economy was in trouble. Growth had dropped to its lowest level in three years, the fiscal deficit was blowing past official targets, and the government was under heavy fire for sitting on its hands as the crisis mounted.

With Mr Mukherjee gone, Mr Singh and Mr Chidambaram made their move, warning Mrs Gandhi of a possible slump in the rupee and even a repeat of 1991.

"There were three meetings over about four weeks ... to tell her that if we don't do all this it will be bad politics," said a government source.

Mr Singh also tackled Mrs Gandhi at length on the issue in July during a flight from Delhi to the northeastern state of Assam.

The commerce minister Anand Sharma added his voice at a separate meeting, explaining to Mrs Gandhi that opening up to global supermarkets like Wal-Mart could tame the corruption that plagues the state-run food distribution network - a compelling argument after two years of graft scandals that have damaged her government.

When she returned this month from a medical check-up abroad, the stage was set for "big bang Friday".

The reforms triggered the walkout of a key coalition partner from the government, reducing it to a minority, but she resisted calls for a U-turn and even plans to join a street march in favour of the retail sector reform.

Mrs Gandhi's ambition in all this is to ensure that the Congress party returns to power in 2014, with her son - Rahul - at the helm of the government after eight years waiting in the wings.

"What she is concentrating on is really the need to be re-elected," said MJ Akbar, a former Congress party legislator and once a trusted Gandhi family insider. "The only thing wrong about this reforms business though is ... they left it too close to the election."