India’s presidential election is out of the way, and the time has come for Prime Minister Manmohan Singh’s government to take action on economic reforms.
For the past couple of months, several senior officials and Congress Party leaders signposted the election as a political barrier against any major reform move. The Congress Party couldn’t afford to upset the opposition — or its allies and risk losing its thin majority, they said.
But Pranab Mukherjee, who gave up the finance minister’s job to contest the poll, has now won with almost 70% of the votes.
All eyes are now on whether the government will begin to push through reforms crucial to revivingIndia’s economy and restoring investor confidence.
Mr. Singh wants to, after all, “reverse the atmosphere of pessimism and revive the animal spirits in the country’s economy.”
Observers say Mr. Mukherjee’s comfortable victory will bolster the government’s confidence, but Congress may not push its luck by trying to bulldoze several reforms at one go.
Instead, Mr. Singh may look to ease through measures on which it is likely to face lesser political opposition, or on which it does not require parliament’s approval.
These include:
FDI in multi-brand retail: This is on top of the agenda, coming after a series of flip-flops dented the government’s credibility.
But Mr. Singh — who has taken over the finance ministry from Mr. Mukherjee — needs to push this through. The entry of global retail giants into the Indian multi-brand retail market would add about 10 million jobs over the next three years, and improveIndia’s attractiveness as an investment destination.
The decision requires an executive order, and not political unanimity. That said, this didn’t help earlier this year when protests from both within and outside the ruling United ProgressiveAlliancescuttled the move.
This time around, however, the government claims that nearly a dozen states support the move.
Trade Minister Anand Sharma told The Wall Street Journal last week that the government is trying to persuade other states to back the move as well.
Standing in the way is the Samajwadi Party as well as India’s left wing parties, who are opposed to any such decision, according to a report in the Times Of India Monday.
Subsidy cuts: A decrease in fuel subsidies is on the cards, with the government indicating recently that it is likely to finally raise diesel prices.
The government has come under severe criticism from the central bank and economists as well as rating agencies for failing to cutIndia’s massive subsidy bill, which contribute to the fiscal deficit.
The high deficit increases the government’s market borrowings, which crowd out private investment, slow growth and add to inflation.
Economists are demanding a steep rise in diesel prices, but Mr. Singh is likely to push through smaller hikes to protect the government from a populist backlash ahead of the general elections in 2014.
Will it happen? Earlier this month, a senior oil ministry official said that a diesel price hike “is inevitable” and that it may come after the presidential elections.
FDI in civil aviation: The battered state ofIndia’s airlines makes it likely that the government will allow foreign carriers to own stakes in Indian airlines.
Indiahas six airlines, but only one of them is making a profit. Their cash positions are terrible, and their once lofty ambitions are flying on a wing and a prayer.
Private carrier Kingfisher Airlines has been hit the hardest over the past year, failing to deposit taxes or even pay salaries on time in a sign of the urgent need for corrective policy steps to create a more conducive business environment.
Apart from this, expectations are high also that the government will try to provide more clarity on the controversial General Anti-Avoidance Rules proposal, which aims to check tax evasion.
Though its implementation has been deferred by a year toApril 1, 2013, chances are that the government will still look to address the grievances of foreign investors.
Mr. Singh may also work on building consensus on the Goods and Services Tax, which aims to provide a uniform tax rate across states.
Other reform proposals such as allowing foreign investment in local pension fund management or increasing the investment cap in the insurance sector could also see the light of day.
But these would require parliamentary approval, which may slow things down.
Edited By Cen Fox Post Team
