India Insight

India and the art of the 24-hour economic reform

September 14, 2012

It’s not every day that India makes such a dramatic move as raising diesel prices, or allowing foreign direct investment in its debt-walloped passenger airlines. It’s certainly not every day that it caps this 24-hour period by allowing foreign investment in retail businesses.

In short, big international companies like Wal-Mart will be able to start their own shops in India, or will be able to buy up to 51 percent of existing retail businesses. This could affect small grocery stores like Nilgiris in southern India all the way down to local street vendors.

The Indian government made all these moves as part of increasingly urgent efforts to firm up its sagging economy. While the diesel price rise of 5 rupees a litre and the retail moves are sure to cause a lot of anger and pain on the part of many Indians, the government has suddenly revealed a desire to think about the collective future of the country.

While sceptics might expect the government to abandon moves that are politically risky, the ruling coalition that implemented the changes — particularly the coalition’s leader, the Congress Party — has silenced its worst critics. The timing isn’t bad either, considering recent corruption scandals that have cast doubt on the ability of the coalition to lead effectively.

So why all the activity all of a sudden? Asia’s third-largest economy was facing multiple threats of a credit rating downgrade. It also has its returning finance minister, P Chidambaram, back in control of the purse.

And last of all, perhaps the government has found a new way of reining in its most recalcitrant political ally, the Trinamool Congress, led by Mamata Banerjee. The fact that the government has taken bold steps in 24 hours means they have a plan B ready if Banerjee threatens to pull out of the coalition.

Congress always had the backbone to pass big economic reforms. Doing them in the space of a day is evidence. But why did it take so long to get to the point where they had to do this, rather than making these moves earlier?

Monday is likely to witness another stock market rally, thanks in part to these moves. But India must look beyond the momentary satisfaction of raising a bunch of stocks. Now the hard work will include passing proposals to fix the banking and insurance businesses, traditionally a tough thing to do because it requires the government to cooperate with its opponents — and you know how that often goes.

If they can pull this off and other moves, maybe it won’t be time just yet for the “I” in “BRIC” to stand for “Indonesia.”

Comments
2 comments so far | RSS Comments RSS

Actually the most important thing here is ‘thee timing’; a scandal ridden govt. is trying diversionary tactics to shift the attention of people from 2G and coalgate and many other scams that it and its’ minsters are neck-deep involved into! so we now have a dose of wholesale reforms….opposition and media will now be more focussed on diesel price and retails fdi etc. and coalgate, 2G etc. will take a back-seat and will no longer be in limelight even if these reforms are rolled-back later-on!

Posted by Anonymous | Report as abusive
 

The instant when I read the title it reminded me of the typical Indian approach of last second makeup & finishing. The economic reforms at this time indicate the pressure on the Govt (unfavorable GDP, prices, unemployment, markets being wary, long awaited change in interest rates by the central bank, needless to say the Current account Deficit). This grand gala of FDI in various sectors and the free lunch (tax rebates) is a two edge sword.

Posted by valueScreation | Report as abusive
 

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