India?s Gandhi dynasty swept back to power yesterday on a stunning wave of anger among millions of rural poor, who felt left behind by the country?s economic boom and voted out the Hindu nationalist government.

Prime Minister, Atal Behari Vajpayee, conceded defeat and said he would resign, Defence Minister George Fernandes told reporters after the opposition Congress party and its allies swept the polls in the world?s largest democracy.

?We have decided to sit in the opposition,? he said. Congress, led by Sonia Gandhi and her children, Rahul and Priyanka, the new faces of the Nehru-Gandhi dynasty, could take power by next week.

?A secular coalition led by Congress should take the oath in the next few days,? party spokeswoman Ambika Soni said. However, a Congress coalition is likely to have to depend on the support of leftist parties, who registered their best performance yet.

Analysts said that the new government was likely to continue the reforms crucial for Asia?s third-largest economy, but that they might have to be redesigned to ensure benefits percolated down to the poor and were not restricted to the urban upper classes.

Power shift

Congress was written off before the poll which Vajpayee called early to cash in on a surging economy, good monsoons and peace prospects with Pakistan. But strong campaigning by the Gandhis, who drew massive crowds, and resentment that the benefits of growth and economic reforms were not reaching ordinary Indians revived the party.

?I am half heart-broken and half-stunned,? said BJP senior official and campaign strategist, Pramod Mahajan. Vajpayee?s Bharatiya Janata Party (BJP) and its allies lost more than a hundred seats in the 545-member parliament.

As officials downloaded the 370 million votes cast on electronic machines over the phased three-week poll, Congress workers crowded into the party headquarters in New Delhi, dancing in the streets and beating drums. Financial markets, which had tumbled on fears that Vajpayee would squeak back at the head of an unstable coalition, reversed early losses as the size of the Congress win became clear. ?The power shift has taken place. It is curtains for the... government,? Bhaskar Rao, chairman of the Centre of Media Studies in New Delhi, told Reuters.

Congress?s strong performance, defying poll forecasts that the BJP would remain the largest party in parliament, appears to firm Sonia Gandhi?s claim on the prime ministership, despite her Italian birth.

In an election where national issues were sometimes overshadowed by local concerns and state politics, major Congress gains in the large southern states of Andhra Pradesh and Tamil Nadu proved critical to the party?s turnaround.

Vajpayee?s biggest ally was thrown out of office in Andhra Pradesh on Monday in a landslide state election loss after his campaign slogan of ?India Shining? failed to win poor farmers. The upset for the pro-reform BJP initially shocked markets yesterday, driving shares down to a five-month low and the rupee to its weakest since January.

But as Congress, the party that kicked off the reforms a decade ago, extended its gains, markets turned bullish. ?Fears of a hung parliament have receded, and the market doesn?t really care who forms the government, the Congress or the BJP, as long as it is a stable government which doesn?t get dissolved six months down the line,? said Dharmesh Mehta, broking chief at Enam Securities.

Hard times for Gandhi

Vajpayee, 79, put the BJP?s hardline Hindu agenda on the backburner and campaigned heavily on a strong economy, low interest rates and the prospects of peace with nuclear-armed rival Pakistan after they came close to war two years ago.

It is rural Indians who turned out to vote in decisive numbers, not the burgeoning middle class that has been the main winner from the boom, cheap loans and an opening economy. ?What ?India Shining? are we talking about? We are dying hungry here,? said Santram, a farmer.

While Vajpayee campaigned on his nascent peace initiative with Pakistan, Congress is committed to continuing the process. But Gandhi has yet to establish Vajpayee?s personal rapport with Pakistani President Pervez Musharraf.

Foreign-born Gandhi would face more difficulties in making concessions to Pakistan and a harder time getting hardliners on board at home.

The count is the culmination of a mammoth logistics effort across the world?s second most populous country, where more than 670 million people were eligible to vote.

Simon Denyer Terry Friel

MAJOR ECONOMIC REFORMS PENDING IN INDIA

? Privatisation

Strategic stake sales in two cash-rich oil refiners, Hindustan Petroleum Corp and Bharat Petroleum Corp, are stuck in court. The planned sale of a 34 % stake in HPCL to a strategic buyer and a 35 % stake in BPCL would cut the government to minority holdings in both. The sale of a 61 % stake in National Aluminium Corp, India?s second-largest aluminium maker, was postponed due to the election. The sale, which would cut the state holding to just over a quarter, has been pending for two years, along with stake sales in about 15 other government firms.

? Banking

Legislation to allow the government to sell down its stakes in state-run banks to 33 % has awaited parliamentary approval for two years. Current government holdings in state banks range from 51 % to total ownership.

? Interest rates

The government wants to cut interest rates it pays on popular small savings schemes to market rates to reduce the government?s interest burden. Savers currently get up to 9.5 % and the aim is to align them to government securities, which currently pay 4.5 to 6.0 %.

? Foreign investment

Plans to increase foreign investment limits in key sectors such as telecoms to 74 % from 49 % are in the pipeline. The insurance foreign ownership limit would rise to 49 % from 26 % and the government also plans to allow foreign investment in the retail sector.

? Labour

Legislation to liberalise labour laws have been pending in parliament for two years. The aim is to make it easier for firms to hire and fire employees and to restructure in tough times.

? Fiscal

The government plans to cut its fiscal deficit from the current 4.8 % of GDP, partly by increasing its tax take to 11 or 12 % from nine %. It plans to simplify tariffs from a current average of nearly 30 %, computerise the tax system and push for fiscal reforms in state governments.

? Pensions

The government plans to cut pension costs by requiring people to part-fund their pension, instead of relying on the current fully funded scheme.

? Aviation

Liberalisation is expected, including allowing private airlines to fly foreign routes. Also expected is a change to allow foreign airlines to own up to about 49 % of domestic airlines.

? Infrastructure

A programme to develop and modernise ports, shipping, shipyards and inland navigation is expected to be launched by 2005. The port development project is estimated to cost $22 billion. Also on the drawing board are a $12.2 billion national highways programme and a mammoth $122 billion project to link rivers to irrigate dry areas and build hydro power stations.