The Indian government’s ambitions to boost economic growth through pro-market legislation may be sinking into parliamentary quicksand amid a slew of stalled bills, reluctant allies and an emboldened opposition.
In just the last week, the ruling Congress party has seen its landmark women’s and nuclear liability bills stalled despite the left-of-center government enjoying a parliamentary majority after last year’s resounding re-election.
With clumsy party management and a degree of political haughtiness after that victory, Congress managed to lose some allies, annoy others and galvanize a divided opposition who believe the ruling coalition majority is softer than it seems.
While the women’s bill was socially rather than economically significant, a message of weakness was sent out.
In doubt now is the government’s ability to pass other important laws, from the introduction of foreign universities into India to the opening up of insurance to foreign companies, the latter languishing in a standing committee.
The nuclear bill, which limits nuclear firms’ liability in case of industrial accidents, will delay entry of US firms into India’s US$150 billion nuclear market and is a setback for industry, where power blackouts can be a huge drain on resources.
“The government’s biggest mistake has been arrogance,” said Mukhtar Naqvi, vice president of the main opposition party, the Hindu nationalist Bharatiya Janata Party, which supported the women’s bill to reserve a third of parliamentary seats for females. “That has meant many parties that were willing to support bills in the parliament have now lost confidence in the government. That will make passing reforms through parliament more difficult in the future.”
Recovering quicker than expected from the global crunch, India’s economy is forecast to grow at more than 7 percent this year and nearly 9 percent next year.
However, investors question its sustainability unless policies are introduced to push investment in dilapidated roads, ports and airports and allow India’s large savings to be channeled into productive returns.
Bills that liberalize insurance and banking look increasingly off the table as does legislation to open up retail, which could resolve supply bottlenecks contributing to high inflation
Indian Finance Minister Pranab Mukherjee’s budget last month relies on growth over spending cuts to reduce the fiscal deficit from a 16-year high of 6.9 percent and help cut record borrowing.
Not all reform will need legislation, and the government has already passed cuts in fertilizer subsidies and raised fuel prices to reduce the fiscal deficit. Sales of stakes in state firms are also underway.
However, a weakness in parliament sends a signal across the political spectrum. Plans to streamline tax revenues depend on each of India’s 28 states agreeing, and political bickering among its allies will do nothing to help that.
Markets have priced in the slow pace of reform as something in India’s DNA and are resigned that the nation will never be able to compete with China when it comes to bulldozing policy. And some in the government say don’t worry about speed.
“Nine percent growth even without those reforms we will manage,” said Kaushik Basu, chief economic adviser to the Finance Ministry.
However, the coalition’s weakening came quicker than expected. This was meant to be an easy year for Congress, with few state elections to worry about.
The women’s bill put a stop to that. The withdrawal of the Samajwadi Party and the National People’s Party in protest cost Congress 26 seats in the lower house. Congress has 208 seats — 64 short of a majority — and it relies on a host of other parties to stay in government.
Two regional parties, Trinamool Congress from West Bengal and the DMK from Tamil Nadu, have opposed the government over fuel price hikes in the budget, although they are staying in the coalition.
The majority coalition may in fact be the equivalent of the fairy tale emperor with new clothes.
“The Congress party has to stop deluding itself that it has a two-thirds majority in parliament,” wrote political analyst Manoj Joshi in the Mail Today. “It does not even have a majority.”
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