India government regains its muscle with reforms

AP News
Posted: Sep 21, 2012 11:51 AM
India government regains its muscle with reforms

NEW DELHI (AP) — Manmohan Singh's coalition has splintered and his government is fighting for survival. But the Indian prime minister, who has been criticized for presiding meekly over a corrupt government, is suddenly being hailed as a bold, powerful leader.

Since pushing through a battery of unexpected economic reforms last week, and refusing to back down in the face of protests and political threats, Singh appeared to have rejuvenated a government thought hopelessly paralyzed.

In a rare primetime address Friday, Singh said he needed to take strong action before the world lost faith in India's economy.

"We have much to do to protect the interests of our nation, and we must do it now. At times, we need to say 'No' to the easy option and say 'Yes' to the more difficult one. This happens to be one such occasion. The time has come for hard decisions," he said.

Singh accused his critics of spreading false information and said he was working to restore high economic growth to India.

A day after a national strike against his program — which included cutting fuel subsidies and letting in foreign retailers — Singh got a political breather Friday when a regional party opposed to the reforms said it would continue to support the government from outside the coalition.

The turnaround for the soft-spoken 79-year-old economist has been shocking.

"He made up his mind that he's going to push through his economic reforms agenda, even if it means he was going to lose power," said Dileep Padgaonkar, a veteran journalist and political analyst.

Padgaonkar said Singh was looking to rescue his legacy and reclaim the glow of his most famous achievement two decades ago when as finance minister he led wholesale reforms widely credited with sparking India's economic rise.

In the past few years, his government was battered by scandals, including the irregular sales of cellphone spectrum and coal blocks that India's auditor said cost the country's treasury tens of billions. The opposition protested by paralyzing Parliament, making it impossible for the government to pass many bills. Bureaucrats, fearing they would get caught up in the next scandal, stopped making decisions, freezing business.

The Trinamool Congress, an important coalition partner, regularly blocked decisions. Its leader, Mamata Banerjee, torpedoed an about-to-be-signed water treaty with Bangladesh and fired the national railway minister, who was from her party, when he presented a budget including the first fare increases in nearly a decade.

A low point came last year when the government decided to allow foreign retail chains to come into the country — and then suspended the decision two weeks later after Banerjee protested.

Meanwhile, India's economy, which officials had hoped would hit double-digit growth, was sputtering. The rupee had plunged in value and the country's huge deficit was putting it under threat of a possible ratings downgrade.

Last week, Singh's government responded. It cut the subsidy on diesel fuel by 5 rupees (10 cents) a liter and placed limits on cooking gas subsidies. It agreed to let in foreign retailers, such as Wal-Mart, loosened rules on foreign investment in airlines and TV and agreed to sell off stakes in four state owned companies.

The Indian Express newspaper said in an editorial the reforms were not likely to have much immediate impact but "they are a crucial statement of intent."

The moves sparked outrage from opponents who fear Indian jobs will be lost if large U.S. and European retailers enter the market.

"(Singh) is out to destroy the interests of small traders and farmers," said Sitaram Yechuri, a lawmaker from the communist party.

Jai Prakash, a student at a protest in New Delhi, said the economic package showed "politicians are not bothered about the welfare of millions of poor people."

Banerjee demanded an immediate rollback or she would pull out of the coalition. The government ignored the threat, setting the decisions into law Thursday. Her party left the government Friday.

In his televised address, Singh said the government feared that if it did not cut fuel subsidies its ballooning deficit would plunge the country into a financial crisis similar to Europe's and reminiscent of the one that sparked India's first wave of reforms two decades ago.

"I know what happened in 1991, and I would be failing in my duty as prime minister of this great country if I did not take strong preventive action. The world is not kind to those who do not tackle their own problems," he said.

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Foreign retailers would create millions of jobs, lower prices for consumers and, because they are required to put half their investments into backend infrastructure, help farmers keep their crops from rotting, he said. India's current network of small retailers will continue to grow alongside the foreign giants as the economy expands, he said.

"The fear that small retailers will be wiped out is completely baseless," he said."

Singh's new reforms have been compared with his support for a U.S.-Indian nuclear deal that ended the country's nuclear isolation but nearly brought down his government in 2008, near the end of his first term.

Though Singh now presides over a minority government, he maintains the support of two parties outside the coalition.

And it is likely that without the mercurial Banerjee the government might go further, possibly opening up the insurance sector to more outside investment, reducing sugar subsidies for the poor and reforming the banking and electricity industries.

The government is "on its front foot for the first time in two years," said Andrew Holland, chief executive of investment advisory at Mumbai's Ambit Capital.

Already Friday, it enacted tax breaks to lower the cost of overseas borrowing for Indian companies and encourage small, first-time individual investors to buy Indian equities. The measures, announced in the annual budget in March, added to reform momentum and helped send the benchmark Sensex index up 2.2 percent, to close at a 52-week high of 18,752.83.

At the same time, the government has sought to lighten the burden on the poor with a tax cut for cooking gas, and media reports said it planned to release 10 million tons of stored grain into the market to bring down food prices.

Zoya Hasan, a political analyst with New Delhi's Jawarhalal Nehru University, said she might not agree with what Singh has done, but he has made himself into India's most influential prime minister since its founding leader, Nehru.

"(He) has brought about a huge change," she said.


Associated Press writer Erika Kinetz contributed to this report from Mumbai, India.


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