FACTBOX-What is the status of India’s economic reform proposals?

By Reuters Staff
August 23, 2010

NEW DELHI, Aug 23 (Reuters) – With India’s main opposition party continuing to object to bills on tax reform and opening up the $150 billion nuclear power market, several reforms proposed by the coalition government may be delayed.

The Congress Party-led coalition government has a slim majority in the lower house of parliament, but not in the upper house. The coalition is also composed of several small and fickle parties who are often suspicious of reforms, making the passage of bills in parliament subject to torturous negotiations.

If not passed, the bills can be taken up in the winter session, around November, but pending state elections from the end of the year could narrow the political window to push any controversial policies.

Here are some of the proposals on the government’s wish list and their status:

NUCLEAR LIABILITY BILL

The bill is crucial for the entry of firms like U.S.-based General Electric ¬†and Westinghouse Electric, a subsidiary of Japan’s Toshiba Corp, who are reluctant to step in without clarity on accident compensation.

The main opposition Bhartiya Janta Party (BJP) has reneged on a promise to support the bill, saying it makes it difficult to claim compensation from suppliers in case of a nuclear accident.

The bill has the personal backing of Prime Minister Manmohan Singh, and government officials have said they are hopeful it will be passed in the current session.

Chance of being passed: HIGH – Probably just a matter of some hard behind-the-scenes bargaining.

GOODS AND SERVICES TAX (GST)

India’s most ambitious indirect tax reform, the proposed nationwide GST, will give the economy a boost by cutting business costs and enhancing government revenue. Given the bill is a constitutional amendment, it needs support of half of all Indian states and two thirds of parliament.

But the proposal has been opposed by the BJP and some states, who worry about the loss of their fiscal powers, and some analysts say this could delay the implementation of the reform beyond the targeted April 1, 2011.

Finance Minister Pranab Mukherjee is in negotiations with political parties and state finance ministers to evolve a consensus, but the political wrangling makes it unlikely the legislation will come in before the next session in the winter.

Chances of bill be passed: UNLIKELY – This bill really needs wide consensus given its a constitutional amendment.

DIRECT TAXES CODE The code will simplify India’s archaic tax laws, helping improve compliance and remove a deterrent for foreign investors to do business in India. The government plans to implement it from April 1, 2011.

The code intends to cut tax rates to bring in more people and companies under the tax net, phase out profit-linked exemptions for companies and replace them with investment-linked incentives.

Despite there being little opposition to the proposal, the government has so far not indicated it will introduce the bill in the current session, making the chances of ratification low.

Chances of bill being passed: LOW – There’s a chance, but it may lose out due to shortage of time the government has in parliament.

FOOD SECURITY BILL

The government plans to expand welfare schemes to give poor households greater quantities of cheap food, which in a country of hundreds of millions of poor is seen as boosting Congress’s chances in elections. [ID:nSGE66I0C0]

But the extra spending will also raise questions if India can keep its fiscal deficit in check and stick to a roadmap of cutting it to 4.1 percent of GDP by 2012/13 from the projected 5.5 percent this year.

The government got back to the drawing board after powerful Congress party chief Sonia Gandhi’s unhappiness over the original proposal. With the drafting proposal still on, it is unlikely the bill will be presented to parliament in the current session.

Chances of bill being passed: LOW – Despite the backing of the powerful Gandhi, an ongoing debate on its fiscal impact will probably delay it.

(Compiled by C.J. Kuncheria; Editing by Alistair Scrutton and Miral Fahmy)

((kuncheria.jacob@thomsonreuters.com; +91 11 4178 1007; Reuters Messaging: kuncheria.jacob.reuters.com@reuters.net)) ((If you have a query or comment on this story, send an email to news.feedback.asia@thomsonreuters.com))

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india is going through some radical changes, for it to lead the world with china in 10 years time, it’s the right moment to act. It’s scary to think that china and india will rule this world in a few years, but c’est la vie

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