Factional Politics and Economic Policy: The Case of India's Bank Nationalization

Abstract

IN THE FEBRUARY 1967 general elections, the Congress Party of India experienced the worst electoral defeat in its history. It lost to the united front coalitions of non-Congress parties in ten of the 17 states into which the Indian Union was then divided while, at the Center, its majority was greatly reduced. Paradoxically enough, this stunning defeat was an ill-disguised benefit for the leader of the Congress Party in Parliament, Prime Minster Indira Gandhi. Mrs. Gandhi had been elected (in 1966) to the prime ministership thanks to the efforts of a combine of party bosses who derived their conspicuous power by the control of the party machine at the local level. This group-the as it was popularly called-had come together not on the basis of a common political program, but to block the road to power of one of their own kind, Morarji Desai. Leader of the party in Gujarat and a former Union Finance Minister, Desai was well known, and accordingly feared, for his dictatorial character. In 1966 the Syndicate had sponsored the election of Indira Gandhi, favored by the left of the party. The Syndicate considered Mrs. Gandhi a secure asset in the forthcoming elections because she was the only heir of the late Jawaharlal Nehru and a person then considered easy to influence. However, Indira Gandhi very quickly proved her mettle by pursuing her own policies and relying on her own advisers, without taking any account of the Syndicate's wishes. But, largely because of her politically expensive decision to devalue the rupee, her position had been greatly weakened in the months before the general