Indian Decade

India Pushes Forward on Economic Reforms

More relaxed rules on foreign investment in pensions and insurance provoke a predictable backlash.

India’s combative Congress-led government released its second tranche of economic reforms on Thursday. It had earlier committed to liberalizing foreign direct investment (FDI) norms in five sectors, including multi-brand retail and aviation.

Foreign entities will now be able to purchase up to 49% of Indian pension and insurance firms. They can currently hold up to a 26% share of insurance firms but cannot currently invest in pensions.

Finance Minister P. Chidambaram said that the government would engage with all the political parties to get the necessary legislation passed in the next session of parliament. However, it’s likely that any decisions passed by the cabinet will be stonewalled in the fractious parliament, which has recently reduced the ruling Congress-led United Progressive Alliance (UPA) coalition to the status of a minority government.

Nonetheless, the new announcement is a bold move by Prime Minister Manmohan Singh’s government, reminiscent of his tenacity over the Indo-U.S. nuclear deal. The reforms are sure to be applauded by domestic markets and the international community. Even though it may seem to be an economically-wise but politically-foolish decision, it is a Machiavellian strategy by a government that knows that it is living on a borrowed time. By throwing down the gauntlet, the UPA hopes to demonstrate its fortitude in the face of resistance.

Expectedly, the government announcement provoked a thumbs-down from both the Hindu nationalist Bharatiya Janata Party (BJP) and the UPA’s erstwhile ally, the Trinamool Congress. Trinamool openly called for the ouster of the Singh government, claiming that pension money intended for Indians will instead go to  foreigners. The BJP said the government had “suddenly changed” tack and vowed to oppose it tooth and nail. The Left Front also came out with guns blazing against, saying that the reforms were being implemented at the behest of the World Bank-directed and charging the government with “moving towards right-wing economic policies”.