Congress Party Takes on Economic Reforms
Image Credit: Office of India's Prime Minister

Congress Party Takes on Economic Reforms

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After lots of dithering, the United Progressive Alliance government led by PM Manmohan Singh finally bit the bullet and initiated significant economic reforms.

In a series of reforms announced on Friday, the Cabinet allowed Foreign Direct Investment (FDI) to compromise a majority stake in multi-brand retail and broadcasting, as well as 49% in aviation. Most significant is the decision to open up the retail sector which had been put on hold last year after a bitter protest from the ally, Trinamool Congress Party (TMC). 

Last November the government had to retract a cabinet decision to allow FDI in the multi-brand retail sector after it encountered severe protests from the opposition and its alliance partner. 

These reform measures come just a day after the announcement of a steep hike of around 14% in subsidized fuel. That decision provoked a nationwide protest but the government has thus far refused to budge.    

Political analysts believe that these economic initiatives will help the government in battling the widely held perception of policy paralysis gripping the country. 

Indian industry has cheered the announcement. Hailing the verdict the Confederation of Indian Industry (CII) said that “this will not only end a long standing uncertainty in policy making but also boost investors’ confidence besides promoting supply chains in the agriculture sector.”

In the last two years, as allegations of corruption have rose, the government has shied away from taking any major economic decisions. A beleaguered government fighting severe graft charges has been unable to mobilize its allies for reforms. But the slowing of the Indian economy and downgrading of its credit rating by some important international agencies seems to have jolted the government to act.

Some believe that these economic decisions have been taken with a larger political objective in mind. Specifically, some, like the opposition party, charge that the government is simply taking these actions to divert people’s attention away from the scandals plaguing senior government officials like PM Singh. According to this view, these economic initiatives will give the ruling Congress Party some of the political space which it has been desperately seeking. 

For Dr. Manmohan Singh, who has been at the receiving end of domestic and international criticism for squandering away his legacy of economic reforms, the major reform announcement will help to recover some of his lost credibility on these issues.

Opposition parties and some of the Congress Party’s alliance partners have criticized the moves to open up the economy further. 

The major test will now be how far the government withstands the severe backlash that is expected to follow in the days to come. TMC has already given the government an ultimatium by threatening to leave the government if the FDI decision is not repealed.

Many see Friday’s decisions as a final gamble by UPA government not only to revive the sagging economy but also to wrest the political initiative from its competitors before the 2014 elections. 

“The time for big bang reforms have come. If we have to go down, we have to go down fighting,” Prime Minister Singh told his Cabinet on Friday. 

Comments
2
The_Observer
September 17, 2012 at 15:48

Will the Indian Government rescind GARR?  Nothing like retrospective taxes to scare off FDI.

Fr.Augustine Keemattam CMI
September 16, 2012 at 10:41

The new initiative by the Government is a bold step economically and politically. TThe country cannot progress unless the grwoth rate is maintained for which reforms are a must. Mayopic, populist perspectives of the regional parties stand on the way of the development of the nation. The people of india will gradually  discern  the worth of the policies of different parties.
 
 
 

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