03/21/2012 06:18 pm ET Updated May 21, 2012

India's Rising Regional Chiefs Shake New Delhi Government

India's Prime Minister Manmohan Singh and the ruling congress-led coalition alliance are shell-shocked. Two powerful leaders from the States of West Bengal and Uttar Pradesh recently issued statements that strongly reflect the national sentiment that New Delhi is out of touch with the realities in the vast rural hinterland and villages where nearly 70 percent of India's population lives.

At the center of the controversy is Montek Singh Ahluwalia, an important aide of Prime Minister Manmohan Singh, whom Time magazine described as "the brain and chief policy adviser" of the Indian government. The Oxford-educated economist spent 11 years with the World Bank in Washington before returning to India in 1979 to work as an economic adviser to the government, a task he continues today.

Ahluwalia had famously declared that those people whose daily consumption in cities was more than Rs 27 (about 50 cents in the U.S.), were not poor. This has created a nation-wide controversy. Mulayam Singh, chief of the Samajwadi Party, which recently swept the regional polls in India's most populous state of Uttar Pradesh (population 200 million), asked the Prime Minister to remove Ahluwalia from the post of Deputy Chairman of the country's powerful Planning Commission. The Prime Minister himself is the Chairman of the Commission.

Mulayam Singh, whose party's massive victory dented the image of the Congress Party's emerging PM-in-waiting Rahul Gandhi (scion of the Gandhi-Nehru family), stated that the planning commission's report on poverty was "totally wrong", and complained that "they do not have any idea of village or rural life. They live in air-conditioned rooms and make their report on the basis of reading some papers."

Echoing the same sentiments, chief minister Mamata Banerjee of West Bengal, whose Trinamool Congress party is an ally of the ruling coalition in New Delhi said, "The Delhi people don't understand the local issue." Earlier, Ms. Banerjee and some other chief ministers thwarted Prime Minister Manmohan Singh's move to allow investment by Wal-Mart and other foreign retailers.

Another jolt for the Manmohan Singh government in New Delhi came when Ms. Banerjee successfully demanded the resignation of Railways Minister Dinesh Trivedi, a member of her own party, when she felt that Trivedi was carrying out the command of the ruling coalition in presenting the budget. The she installed a new minister of her choice. Earlier, Ms. Banerjee and several other chief ministers had stalled the creation of new agencies to combat terrorism and prosecute corruption, arguing that these vested too much power in the hands of New Delhi and threatened India's federal structure.

Although it is unlikely that Ms. Banerjee will withdraw her support from the government in New Delhi in the near future, the recent developments have further reinforced the general impression how fragile Mr. Manmohan Singh's government is as it struggles to implement even modest policy reforms. The government is seen as aggravating the divide between the rich and the poor population, and implementing economic reforms without public debate. In addition, the government has been plagued with major corruption scandals that refuse to die.

One of the reasons for public suspicion about policy reforms has been that neither the Indian government nor the foreign companies, such as Wal-Mart and Monsanto, have made any effort to explain how their arrival here would benefit the Indian public. Do these companies feel that with Manmohan Singh and Montek Singh Ahluwalia being their cheerleaders they have nothing to fear? When these two protagonists are gone, who would protect them?

The Indian media has largely failed to evaluate the economic and political policies/actions of Manmohan Singh and Montek Singh Ahluwalia, and their long-term impact, especially on the millions of poor. In spite of the growing disparity in wealth, there is a conspiracy of silence. If public is denied information, and there is no discussion on the benefits of such policies and actions, then there is natural suspicion. Ultimately, the foreign companies in India would have to endure the most of opposition or worse.

Perhaps the U.S. administration has done the greatest disservice to the American companies by pressuring Indian government to permit their entry. American companies, famous for their own enterprise, could have survived without these crutches. However, the lazy company CEOs and the greedy commission-oriented myopic politicians seem to have encouraged dependency on government. This has resulted in unnecessary hostility of local populations towards American and other companies.

India's emerging powerful state leaders, such as Mulayam Singh and Ms Mamata Banerjee, seem to be playing up only the fact that the Manmohan Singh's team, staffed by many former World Band and IMF staffers, have no clue about the realities in the country and are there just to promote American interests. Many good things that the economic reforms have brought about in the country might not get highlighted. This happens when governments' try to steamroll and rush things without seeking public support.