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The unexpectedly strong mandate given to the ruling United Progressive Alliance government in the April-May 2009 national elections is a considerable positive for political stability and offers potential for economic reform. Nonetheless, the new government faces a daunting task to support the economy, boost domestic security and improve relations with Pakistan and the US.
The Indian National Congress (INC) now has the opportunity to implement the economic reform agenda of Prime Minister Manmohan Singh. However, more immediate priorities, such as the implementation and subsequent rollback of fiscal stimulus measures, the need to enforce government control in Naxalite rebel-controlled areas and to manage relations with Pakistan and the US will most likely take precedence in the short term, as the major commitment to troop deployment against the Naxalites showed in September.
The US and India finalised a defence agreement that allows the sale of sophisticated US arms to India as US Secretary of State Hillary Clinton visited New Delhi on July 20. The move will enable India to modernise its military, something that is likely to cause consternation across the border in Pakistan. The US has only recently made headway in convincing Pakistan to deploy a larger share of its armed forces from the border with India to fight Islamist insurgents in its northwest provinces. This development could now be reversed as India is expected to spend more than US$30bn on arms over the next five years.
Prime Minister Singh and Pakistani President Asif Ali Zardari met on the sidelines of the Shanghai Cooperation Organisation (SCO) summit in Russia in June, where they agreed to arrange a meeting between their foreign secretaries. Although we view these initial talks – the first since the Mumbai attacks in November 2008 – as a positive sign towards better relations, we do not foresee any significant improvements in bilateral ties anytime soon, at least until Islamabad is able to present evidence that it is bringing Kashmiri separatists operating from its territory under control
India Defence and Security Report Q4 2009: http://www.companiesandmarkets.com/r.ashx?id=G07H6XF82168908
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