India's central government hopes to push through significant financial reforms in coming weeks aimed at kick-starting the country's slowing economy, but Mamata Banerjee, West Bengal's chief minister, may again stand in the way.
The United Progressive Alliance government, led by the Congress Party, faces corruption scandals, paralysis in policy making and a foreign investor backlash to recent tax proposals. In coming weeks, it has a long “to do†list: open up the aviation, broadcast, pension, insurance and retail industries to foreign investors, approve stake sales of government-controlled companies, and trim fat from some social programs in the budget, analysts and advisers to the government said in interviews over the past two days.
Cabinet officials and government spokespeople have been quietly speaking to the press about their plans, generating a flurry of optimistic, mostly unsourced news reports and propelling the Bombay Stock Exchange's Sensex Index to a seven-month high Thursday morning.
A formidable opponent of foreign direct investment in the retail sector, one of the most high-profile of these proposed changes, may not have budged, though.
“Our party is guided by the philosophy ‘For the people, of the people, with the people,'†Derek O'Brien, chief whip in the upper house of Parliament, who is from Ms. Banerjee's Trinamool Congress Party, said by e-mail on Thursday afternoon in response to questions. “Our considered views on F.D.I. were not formed overnight; they have been an integral part of our manifesto on which the voter has placed their trust and confidence in us. We will not let them down.â€
< p>Late last year, the government withdrew a proposal to allow foreign investors into India's retail sector after Ms. Banerjee, who is part of the governing alliance, objected.Many issues on the government's long to-do list have been around for months (or, in some cases, years), but resolving them is expected to be a high priority at a cabinet meeting Friday evening and a full meeting of India's Planning Commission, which formulates five-year plans for the country, on Saturday, government spokespeople say.
Analysts and investors have been clamoring for change. “Domestic demand, especially investment demand, is suffering both due to global economic uncertainty and, importantly, lack of structural policy reform,†analysts from HSBC Global Research said in a report Wednesday. On Thursday, HSBC cut its 2013 economic growth projections for India to 5.7 percent, from 6.2 percent earlier.
The next few weeks represent a unique, finite window to usher in reform, analysts and government administrators say. If they are not accomplished by mid-October, they could be punted into next year.
By mid-October, Election Commission rules come into effect ahead of elections in Gujarat and Himachal Pradesh, which prohibit any standing government from announcing significant policy decisions in the run-up to the contests. Then the winter session of Parliament begins in mid-November, but Parliament's last session was disrupted nearly every day by opposition parties.
Many of these reforms can technically be signed into existence by the commerce minister, Anand Sharma, but on a more practical level they need the support of cabinet ministers and the Congress Party-led coalition's allies, like Ms. Banerjee.
Government advisers and officers say that there has been a stepped-up effort to attract foreign investment and address India's budget deficit since the former Home Minister P. Chidambaram took over as finance minister in late July .
“There has been a breath of fresh air in North Block,†said Mukesh Butani, chairman of BMR Advisors, which advises corporations on taxes and deal-making, and a member of a recently formed committee advising the Indian government on tax policy.
Yet many remain pessimistic about near-term changes. “With a string of state elections round the corner and leading general election in 2014, progress on structural reforms is likely to remain slow,†HSBC said on Wednesday.
Some are downright cynical. Asked whether he thought the government would relax rules for foreign direct investment in civil aviation, one Indian airline executive said: “I'll believe it when I see it.â€
