India’s embattled Prime Minister Manmohan Singh pushed ahead on Thursday with his make-or-break reform agenda as the government prepared to approve the latest batch of measures to open up the economy.
Despite fierce resistance from opposition parties who are threatening to bring down the coalition in the next parliamentary session, Singh has signaled he is intent on more moves aimed at reviving economic sentiment.
At a cabinet meeting later Thursday, the green light will be given for foreign direct investment (FDI) in the insurance and pensions sectors following similar moves for the aviation, broadcasting and retail industries last month.
“Measures like opening the pension sector to foreign investment and raising the FDI cap in insurance to 49 percent will be announced,” a finance ministry official told AFP on Wednesday on condition of anonymity.
Singh and his reformist new finance minister, P.Chidambaram, have stressed the need to encourage foreign and domestic investment to get India’s economy moving again after a slump in GDP growth and worries about the budget deficit.
“The government has to take a number of decisions. As we take these decisions it will be clear that we are on the reform path and we will continue on that path,” Chidambaram told the BBC in an interview broadcast on Wednesday.
“I think we will return to 9.0 percent growth once we address certain fundamental constraints.”
Other measures to be announced after the cabinet meeting at 04:30 pm (1100 GMT) include the setting up of a national investment board.
In early afternoon trading on the Bombay Stock Exchange, stocks were at a 15-month high, up 1.06 percent at 19,069.56 points, while the rupee strengthened to its strongest in five-and-a-half months at 51.79 dollars.
Singh, as well as his political boss Sonia Gandhi, the head of the ruling Congress party, face a broad coalition of opposing forces from political parties hostile to foreign companies to trade unions worried about job losses.
Furthermore, the ruling coalition dominated by the left-leaning Congress is now a minority in parliament, having lost an ally who quit over the sensitive issue of allowing foreign supermarkets into the retail sector.
The proposed foreign direct investment changes — raising the cap to 49 percent in insurance and allowing foreign ownership of up to 26 percent in pensions companies — must be approved by parliament.
The leader of former coalition member Trinamool Congress, Mamata Banerjee, threatened on Monday to bring a no-confidence motion against the government which could lead to elections before their scheduled date in 2014.
For the time being, however, Singh has succeeded in changing the mood in India after years of criticism of his ponderous policy-making and a string of corruption scandals that sapped the government’s energy.
The most recent scandal — over the allocation of lucrative coal mining rights to private companies in a process that “lacked transparency and objectivity” according to the national auditor — has slipped from the headlines.
“Instead of giving good quality, clean governance, they are introducing new ‘big bang’ things that have a visible PR impact,” Subhash Agrawal, the head of think-tank India Focus, told AFP.
He added that the Congress party, traditionally focused on the rural poor, was now targeting the emerging middle classes which were “slipping away” amid frustration over the mishandling of the economy.
The reformist 80-year-old Singh is seen as having won a struggle within his party on economic policy by convincing the more left-leaning Sonia Gandhi of the urgent need for economic growth in order to fund more welfare spending.
India’s growth is bumping along at around five percent — its slowest pace in three years — and ratings agency Standard and Poor’s warned in June that it could lose its investment-grade rating.
“It is a huge gamble by the Congress,” Neerja Chowdhury, a political commentator in New Delhi, told AFP. “What goes in Singh’s favour is the support of his own party.”
Some economists have warned however that opening up to foreign direct investment is not a panacea for India’s problems, with labour market reform, improvements in infrastructure and better governance needed more urgently.
