Supporters cheer in the rain as they gather outside an election counting centre in Jalandhar, in the Northern Indian state of Punjab 27 Feb. 2007

India's ruling Congress Party has suffered electoral reverses in two out of three states where local elections were held recently. The losses are being attributed to rising concerns about inflation and economic reforms. From New Delhi, Anjana Pasricha has this report.    

Vote counting on Tuesday shows that the Congress Party lost control of the two key northern states of Punjab and Uttarakhand, in elections held earlier this month.

However, the Congress Party is likely to retain control of Manipur state.

The losses will not affect the stability of the Congress-led federal government, but are a setback for the party that is half way through its five-year term. 

Political analysts say voters tossed the Congress Party out of office in Punjab and Uttarakhand due to growing popular anger over spiraling food prices. Although the economy is surging, inflation is at an all time high, hurting millions of poor people.

As news of his party's setbacks came in, Prime Minister Manmohan Singh acknowledged that there are wide concerns about inflation and rising prices.

"I too recognize that inflation is a problem, the government is trying to tackle it as best we can," Mr. Singh said. "Our challenge is to tackle inflation without hurting the growth of agricultural and industrial economy of our country. It is not easy. Everywhere you find these tradeoffs between inflation and growth."

Inflation is not the only concern. Farmers are also angry with the government for moves to acquire farmland to establish huge economic zones for the country's booming industrial and services sector.

Political analysts say the electoral setbacks will force the government to take stock and slow economic reforms.     

Senior Bharatiya Janata Party (BJP) leaders Jaswant Singh, left, Rajnath Singh, center, and L.K. Advani look on before a meeting at the party headquarter in New Delhi, 27 Feb. 2007

A government economic survey released Tuesday said the economy will likely sustain its high growth momentum in coming years. But it said a slowdown in the agricultural sector is preventing a majority of Indians from enjoying the fruits of economic expansion.

In the recent votes, bad news for the Congress Party was good news for the Hindu nationalist Bharatiya Janata Party, which wrested control of Uttarakhand on its own and won power in Punjab with an ally.         

The results are likely to set the tone for another round of key state elections scheduled in the large and politically crucial state of Uttar Pradesh in April.