Opposition leaps ahead in India's poll

"We will sit down and discuss our performance," top BJP official Pramod Mahajan told BBC News Online.

"If the results go against us eventually, the responsibility lies with all of us."

Congress supporters have already taken to the streets of Delhi, dancing with joy and setting off firecrackers.

A sweeping win in the state poll of Andhra Pradesh, announced on Tuesday, gave the Congress party a huge boost ahead of the national election counting.

If neither the BJP or Congress wins an outright majority, they will begin to woo smaller parties to try to form a government.

India's president, APJ Abdul Kalam, has also been in discussions - with legal experts about who should be asked to form the next administration following a hung parliament.

Normally in that case the party with the largest number of seats is given time to prove its majority.

The shock defeat of BJP ally Chandrababu Naidu by Congress in Andhra Pradesh forced the ruling alliance to reconsider its options.

India's financial markets, which dropped when counting began on Thursday, have rebounded after signs that the Congress were ahead.

Traders had feared the NDA's privatisation plans would stall if it did not return to government.

The alliance's "India Shining" slogan seems not to have resonated with the poor, many of whom feel excluded from economic growth.

But they say the key foreign policy issue - trying to pursue a roadmap for peace with nuclear rival Pakistan, should not be affected.

The new electronic voting system will cut counting from two days to a few hours.

Only 539 of the 545 seats in the lower house, or Lok Sabha, will report on Thursday.

Repolling has been ordered in three seats in the eastern state of Bihar because of irregularities and in one seat in Manipur because of a landslide. Two seats are appointed by the president.

India's Vajpayee May Not Win Majority, Sparking Race (Update6)

May 13 (Bloomberg) -- Indian Prime Minister Atal Bihari Vajpayee's ruling coalition is set to lose its majority in the lower house of parliament, throwing open the race to lead the world's biggest democracy. Shares, bonds and the rupee fell.

Vajpayee's Bharatiya Janata Party and its 15 allies are neck- and-neck with a rival coalition led by Sonia Gandhi's Congress party, pointing to a hung parliament, according to five television channels. Officials began counting as many as 370 million votes at 8 a.m. local time after a three-week general election that ended May 10.

Investors sold Indian assets on concern that whichever coalition forms the next government may not survive the full five- year term, threatening pledges by both to cut the budget deficit, boost investment and fuel economic growth. The benchmark Mumbai stock exchange Sensitive index fell 0.5 percent. The yield on the 10-year government bond rose 0.01 percentage point to 5.2 percent. The rupee lost 0.4 percent to 45.56 per dollar.

``Democracy is good, but in India's case it slows down serious reform,'' said Michael Preiss, chief investment strategist at CFC Securities in Hong Kong. ``Overseas investors would like to see a status quo -- the ruling party firmly established so they could pursue more asset sales and improve infrastructure work which they started.''

Vajpayee's National Democratic Alliance is leading in 202 of 539 seats where votes are being counted, as of 11 a.m., according to New Delhi Television, a television channel. The Congress coalition is leading in 213. Star News put the ruling alliance ahead by four seats.

Four of the 543 elected seats in the lower house of parliament aren't included in today's count because of repolling.

Coalition Talks

Prannoy Roy, a pollster with two decades of experience in forecasting elections, told the NDTV 24X7 news channel the results favor Sonia Gandhi to become the next prime minister.

Vajpayee's coalition may get as few as 230 seats, 42 short of the 272 needed for a majority in the lower house of parliament, an exit poll by market research company A.C. Nielsen Monday showed. The Congress coalition may get 205.

In the last parliament, the ruling coalition held 273 seats while the Congress party and its allies held 148.

Vajpayee, 79, and Italian-born Sonia Gandhi, 57, Tuesday opened talks with prospective allies after the main ally of the ruling coalition suffered a landslide defeat in a state assembly election, signaling Vajpayee may have to make up a bigger shortfall of seats than first thought.

`Volatility'

Vajpayee may look for help to the Samajwadi Party and the Bahujan Samaj Party, regional parties that draw their support from northern India's rural poor. Sonia Gandhi held talks with the Communist Party of India (Marxist), India's third-largest party, which has promised to support the Congress if needed.

Investors are concerned socialist parties may make it harder to cut subsides, sell state assets such as Hindustan Petroleum Corp. and lower trade barriers and may even cause a new government to collapse by withdrawing their support.

Shares in Hindustan Petroleum, India's second-biggest refiner, fell 11 percent. Bharat Petroleum Corp., India's third- biggest refiner, dropped 10 percent. National Aluminium Co., Asia's largest producer of alumina, fell 7.6 percent.

``There will be volatility in the market, both stocks and foreign exchange markets,'' said Ravi Sud, vice president of finance at Hero Honda Motors Ltd., India's biggest motorcycle maker. ``Because of political uncertainty and short-term instability of the government, the markets will be choppy.''

Rural Backlash

Vajpayee fought the election on the slogan of ``India Shining,'' counting on the fastest economic growth in 15 years to win a new mandate to sell state assets and cut subsidies, policies that reduced the budget deficit to a six-year low of 4.8 percent of gross domestic product in the year to March 31 and fueled an 83 percent gain in the Sensitive index.

While the campaign captured the imagination of India's 245- million-strong middle class it held little appeal for the 700 million Indians who live in the countryside, where a lack of investment in irrigation and poverty relief were the main concerns.

The scale of the backlash was highlighted Tuesday when the Congress party swept to power in the Andhra Pradesh state assembly, ousting the nine-year government of N. Chandrababu Naidu's Telugu Desam Party, the biggest ally of Vajpayee's National Democratic Alliance with 29 seats in the 545-member lower house of parliament.

Naidu's defeat prompted overseas investors to sell $135 million of Indian stocks on Tuesday, the most since at least October 1999, according to Bloomberg data.

`Badly Needed'

``The poor have good reason to believe the concerns of the government have shifted from their needs to that of corporate economy,'' said Pran Chopra, a political analyst at the Center For Policy Research in New Delhi. ``A corrective was badly needed.''

India sold a record $3.5 billion of state assets in the year ended March 31, including a stake in Oil & Natural Gas Corp., swelling India's foreign exchange reserves to a record $118.5 billion. To spur growth, the central bank cut its loan rate to commercial banks by two percentage points over three years to a 31-year low of 6 percent, boosting demand for homes and cars.

Asia's fourth-largest economy grew 10.4 percent in the final three months of 2003, vaulting India above China as the world's fastest-growing country, as heavy monsoon rains led to record crops, raising farmers' incomes. The government forecasts growth doubled to 8.1 percent in the year ended March 31, the most since 1989.

Congress Manifesto

If returned, Vajpayee plans to accelerate the pace of asset sales. Stakes in state-owned companies worth $3.5 billion, including refiner Hindustan Petroleum Corp. will be up for grabs. The government has already opened up insurance, defense and newspapers to foreign investors such as News Corp. and pledges to allow 26 percent overseas investment in retailers.

The Congress party says it is no less committed to reform, although it would refrain from selling majority stakes in profitable state companies. Its manifesto emphasizes the plight of rural dwellers with commitments to boost investment and jobs in the countryside.

Both Congress and the ruling alliance promise to raise India's economic growth rate to 10 percent and lift 260 million people, a quarter of India's population, out of poverty.

``The reform process should continue,'' said Sud at Hero Honda. ``The speed is the main issue, which may be slower in the short run, but I expect stability after a couple of months.''

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	COUNTING THE VOTES 543 constituencies in 28 states About 675m registered voters One million voting machines Turnout across four phases was about 56% Main contest between BJP and Congress alliances Repolling ordered in four constituencies Why the elections matter The electronic vote Have Your Say