India Money, Political and General News Correspondent, New Delhi
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May 3, 2010

Key political risks to watch in India

NEW DELHI, May 3 (Reuters) – Initial investor bullishness about the appetite of India’s government for economic reforms has waned due to the continued dependence of the Congress party on fickle smaller parties suspicious of market liberalisation.

Here is a summary of key risks to watch:

* POLITICAL STABILITY AND REFORMS

The government’s ability to further open the economy remains in doubt, especially because it requires support from reform-suspicious smaller parties to pass legislation.

The coalition’s stability will determine the fate of politically contentious proposals like allowing greater foreign stakes in the pension and insurance sector, letting foreign universities open local campuses, and setting caps on operator liability in case of a nuclear accident.

What to watch:

— Government comments on the timing of planned reform bills in parliament. Signs the government will fast-track reforms will be bullish for markets.

— Announcement of stake sales in state firms. The government plans to raise 400 billion rupees to help cut is fiscal deficit.

— Progress of the nuclear liability bill, which would allow firms like General Electric <GE.N> and Toshiba Corp <6502.T> unit Westinghouse Electric to enter India’s $150 billion civil nuclear sector.

* INFLATION, INTEREST RATES AND GROWTH

Inflation is back as a key policy problem for the government and central bank, as demand-side price pressures mount. The central bank says it prefers "baby steps" to normalise monetary policy but could surprise markets if inflation remains high.

The government is unwilling to back an aggressive monetary policy as demand has not yet returned to pre-financial crisis levels and as it has to borrow a record $100 billion this year.

The central bank has raised benchmark rates twice since March by a total of 50 basis points. Most analysts expect a further 100 basis points increase by end-June.

Being behind the curve — which is where some analysts see the central bank — raises the inflation risk. But tightening too much or too early would weigh on growth and could stifle the tax revenue needed to keep the fiscal deficit at targeted levels.

What to watch:

— Comments of policymakers, advisers and central bankers on the outlook on inflation, which could determine the timing and extent of the next rate hike. A hawkish outlook would weigh on bond prices <IN063520G=CC>.

— Food prices. The opposition has attacked the ruling Congress party over high food prices and the government will find it difficult to focus on reforms when it is under pressure.

— Crude oil prices. If they keep rising, fiscal prudence would require an increase in state-set fuel prices to maintain subsidies at budgeted levels. But this may not happen, given that coalition allies and rival parties would strongly oppose the politically sensitive move. This could spark investor worries on whether the fiscal deficit is under control.

* THE MONSOON

The progress and even distribution of the June-September monsoon rains will be critical for a rebound in farm output after last year’s drought, to enable a softening of food prices and a rise in rural consumer demand.

The government has forecast a normal monsoon, but analysts remain sceptical as official predictions have often proved wrong. Any sign of a poor monsoon would push up domestic and global prices of grains, sugar, oilseeds and lentils.

It would also add to pressure on the central bank to further tighten policy.

What to watch:

— Official monthly updates on the progress of the rains.

* EXTERNAL SECURITY AND DIPLOMACY

India and Pakistan’s prime ministers had what officials called "very good talks" at a late-April meeting in Bhutan, and promised to continue dialogue, raising hopes of an improvement in frayed ties between the nuclear-armed rivals. India’s Manmohan Singh and Pakistan’s Yusaf Raza Gilani said their foreign ministers would meet "as soon as possible".

The semblance of a roadmap for future engagement is good news for the United States, which sees peace between the neighbours as vital for its efforts to stabilise Afghanistan, where the two countries are jockeying for influence.

A major military conflict between India and Pakistan is highly unlikely. But an attack on Indian interests domestically or abroad by Pakistan-based militants could spark off a limited confrontation that would temporarily unsettle asset prices and cause a flight out of risky assets into safe haven investments.

What to watch

— Whether the thaw in relations takes hold and senior officials continue to hold productive talks. While the improvement in relations would be positive for asset prices in the long term, it would not have a significant impact on markets in the short-term.

* INTERNAL SECURITY

India remains vulnerable to violent attacks by domestic Maoist insurgents or foreign militants, as shown by an ambush by Maoist rebels in April that killed 76 police.

The government has stepped up its offensive against the Maoist rebels but the risk of more attacks, especially on targets with economic importance, has risen.

Al Qaeda and its affiliates, who see India as a major foe, remain a serious threat and Pakistan will continue to be a haven for militants seeking to launch attacks on India.

What to watch:

— Whether the next attacks provoke escalating tensions. Investors have generally shrugged off militant attacks, but if they cause a serious deterioration in relations with Pakistan, or force major investors to pull out from areas vulnerable to Maoist violence, asset prices would suffer.

(Editing by Bappa Majumdar and Andrew Marshall)





Apr 28, 2010

Mayawati proves key for govt

NEW DELHI (Reuters) – The pivotal role played by Mayawati, a self-proclaimed leader of the “untouchables”, in ensuring India’s Congress-led government’s victory in parliament highlighted the importance of smaller parties and a rough road ahead for reforms.

Last-moment support from Mayawati, chief of the Bahujan Samaj Party that champions lower castes, helped the ruling coalition trounce by a wide margin an opposition sponsored vote of confidence on Tuesday over a hike in fuel and fertiliser prices.

Apr 28, 2010

Leader of the low-castes proves key for Indian govt

NEW DELHI, April 28 (Reuters) – The pivotal role played by
a self-proclaimed leader of the “untouchables” in ensuring
India’s Congress-led government’s victory in parliament
highlighted the importance of smaller parties and a rough road
ahead for reforms.

Last-moment support from Mayawati, chief of the Bahujan
Samaj Party that champions lower castes, helped the ruling
coalition trounce by a wide margin an opposition sponsored vote
of confidence on Tuesday over a hike in fuel and fertiliser
prices.

Apr 27, 2010

Govt wins parliament vote; reform doubts remain

NEW DELHI (Reuters) – The Congress-led government sailed through a trial of strength in parliament on Tuesday, with smaller parties giving it a leg up to achieve a surprisingly strong victory despite a recent string of troubles.

Prime Minister Manmohan Singh’s government was backed by 289 MPs in the 545-strong Lok Sabha, while the opposition managed 201 votes against. Two parties walked out on the vote, adding to abstentions.

Apr 27, 2010

India government wins parliament vote

NEW DELHI (Reuters) – India’s Congress-led government sailed through a trial of strength in parliament on Tuesday, with smaller parties giving it a leg up to achieve a surprisingly strong victory despite a recent string of troubles.

Prime Minister Manmohan Singh’s government was backed by 289 lawmakers in the 545-strong lower house, while the opposition managed 201 votes against. Two parties walked out on the vote, adding to abstentions.

Apr 27, 2010

India govt wins parliament vote; reform doubts remain

NEW DELHI, April 27 (Reuters) – India’s Congress-led
government sailed through a trial of strength in parliament on
Tuesday, with smaller parties giving it a leg up to achieve a
surprisingly strong victory despite a recent string of
troubles.

Prime Minister Manmohan Singh’s government was backed by
289 lawmakers in the 545-strong lower house, while the
opposition managed 201 votes against. Two parties walked out on
the vote, adding to abstentions.

Apr 27, 2010

Q+A – Congress-led government faces confidence vote

NEW DELHI (Reuters) – The Congress-led coalition government faces a trial of strength on Tuesday with some opposition parties demanding a parliamentary vote to force it resign over a hike in fuel and fertiliser prices.

Prime Minister Manmohan Singh is expected to survive the vote, but his margin of victory will signal the government’s ability to pass major bills from opening up its $150 billion nuclear sector to allowing greater foreign stakes in pensions and insurance.

Apr 26, 2010

India cricket mogul Modi suspended in growing scandal

NEW DELHI (Reuters) – The head of India’s $4 billion cricket premier league was removed from his post on Monday after a scandal that has ensnared top politicians and strained the ruling coalition.

Tax authorities are probing the three-year-old Indian Premier League (IPL), the game’s most lucrative tournament, after a junior government minister resigned following allegations of improper influence.

Apr 26, 2010

IPL boss Lalit Modi suspended in growing scandal

NEW DELHI (Reuters) – Indian Premier League chief Lalit Modi was suspended, officials said on Monday, after a scandal in cricket’s richest event ensnared top politicians, Bollywood stars and strained the ruling coalition.

Tax authorities are probing the three-year-old Indian Premier League (IPL) franchise, valued at an estimated $4.1 billion, after junior government minister Shashi Tharoor resigned after allegations of improper influence.

Apr 26, 2010

Cricket mogul Lalit Modi suspended in growing IPL scandal

NEW DELHI (Reuters) – Indian Premier League chief Lalit Modi was suspended, officials said on Monday, after a scandal in cricket’s richest event ensnared top politicians, Bollywood stars and strained the ruling coalition.

Tax authorities are probing the three-year-old Indian Premier League (IPL) franchise, valued at an estimated $4.1 billion, after Shashi Tharoor, a junior government minister, resigned after allegations of improper influence.