India's reforms look forlorn
By Paranjoy Guha Thakurta
NEW DELHI - Prime Minister Manmohan Singh's coalition government is no longer
dependent on communist parties to complete its term in office but it may yet
fail to push through market-friendly, neo-liberal economic policies - for lack
of time and political consensus.
Since he took charge in May 2004, Manmohan's United Progressive Alliance (UPA),
which is led by the Congress party, had been crucially dependent on the outside
support of the Communist Party of India-Marxist (CPI-M) and three smaller left
parties for its survival.
After the left withdrew support for Manmohan last month after his
government went ahead with a nuclear cooperation agreement with the United
States, the ruling coalition won a confidence vote in parliament amid
allegations that opposition members of parliament had been "purchased" and
"persuaded" by questionable means. The UPA managed to garner a majority thanks
to the support of a regional political party, the Samajwadi Party, and other
small political formations and independent lawmakers.
Manmohan and his finance minister, Harvard-educated lawyer Palaniappan
Chidambaram, are ardent votaries of neo-liberal economic policies. But their
hands were tied because the communist parties effectively held veto power over
the government. Some important economic policy initiatives opposed by the left
parties are:
Raising the cap on foreign direct investment (FDI) in insurance companies from
26% at present to 49%.
Creating a new regulator for pension funds to break the monopoly of the
government-owned Employees' Provident Fund Organization (EPFO) and allowing
pension funds to be invested in stock markets.
Allowing the central government's equity holding in public sector banks to come
down below 50%.
Capping voting rights of foreign investors in Indian banks to 10% irrespective
of the size of their shareholding.
Allowing FDI in multi-brand retail outlets.
Changing labor laws, in particular, the Industrial Disputes Act.
Increasing the involvement of the private sector in mining, including coal
mining.
Sale of equity shares in major public sector undertakings.
On July 31, speaking at a book release function, Chidambaram said: "I have no
doubt in my mind that the leadership of parties will assert itself. And, we
will take the legislative agenda forward in areas where we agree."
However, analysts believe that many of the policy changes that require
legislative approval may not come through.
Although the principal opposition party, the right-wing Hindu nationalist
Bharatiya Janata Party (BJP), is ideologically inclined towards economic
reforms, it is at present reluctant to support the government. Party
spokesperson Ravi Shankar Prasad has gone on record saying: "We have serious
reservations about the legitimacy of this government."
On July 29, after the EPFO board of trustees HSBC, ICICI (formerly Industrial
Credit and Investment Corporation of India), Prudential and Reliance Capital as
asset managers to break the monopoly of the government-owned State Bank of
India, parties on both the left (CPI-M) and the right (BJP) cried foul.
The BJP and the CPI-M alleged that Reliance Capital had been included at a
"late stage" to "favor" its head, Anil Ambani, according to Forbes magazine the
world's sixth-richest man, who is close to Amar Singh, general secretary of the
Samjawadi Party - which bailed the government out after the left withdrew its
support. The government denied the allegation.
The impetus behind any reform movement has also been questioned.
"Even if one could expect some forward movement in policy changes for the
insurance sector reforms, other policy initiatives such as higher foreign
investment limits have less to do with what is perceived to be economic reforms
and more to do with pressures exerted by lobbies within India and abroad," said
Laveesh Bhandari, director of Indicus Analytics, an economic research firm
based in New Delhi.
Bhandari also argued that the left wing within the Congress can be expected to
oppose policy changes that are seen to be a consequence of American influence.
"The government is already under attack for the nuclear deal with the US and
may not do anything that will be seen as an outcome of lobbying by pressure
groups such as American insurance companies."
A K Bhattacharya, group managing editor of the Business Standard newspaper said
another important reason why many economic policy changes may not come through
is simply lack of time. "The next general elections have to be held by April
but could take place earlier," he said. "The policy priorities of the
government will be focused on containing inflation and little else since it is
in election mode".
Amending labor laws and increasing the cap on foreign direct investment for
insurers require a consensus across ideological lines that is lacking in
India's charged and fractious political atmosphere.
Other economic factor are also negative. Bhattacharya said the government is
unlikely to sell shares of public sector companies at this juncture when stock
market indices are low and volatile. "The government would be foolish to sell
shares now and be accused by its political opponents of selling family silver
at a cheap rate," he said.
Even so, if there is no consensus across political parties in India and within
them on the benefits of liberalization, privatization and globalization, there
is a huge area of agreement on many economic issues, notably the need to
improve both the country's physical infrastructure (to ensure availability of
electricity, water and improved roads) as well as its social infrastructure
(basic health-care and elementary education).
In the run-up to the elections, supporters of the government will emphasis its
"populist" programs such as a farm-loan waiver scheme and an
employment-guarantee scheme in rural areas. where the incumbent regime is
fighting to retain support among poor voters whose real incomes have rapidly
shrunk in recent months because of high food prices.
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
