Outgoing Singh under pressure to deliver on reform pledge

India’s reform agenda:

What Singh could tackle before the election

● Reduce wasteful fuel subsidies so as to cut the fiscal deficit, without reducing productive capital expenditure.
● Introduce a nationwide goods and service tax (a value added tax) to replace the complicated different indirect taxes that vary dramatically from state to state.
● Clear roadblocks to domestic coal mining, and develop cost-effective transportation infrastructure so as to reduce dependence on imported coal.
● Reform India’s labour laws to make it easier for companies to lay off workers and encourage companies to take on long-term employees.
● Cut red tape to make it easier for companies to do business.

January 8, 2014 7:20 am
Outgoing Singh under pressure to deliver on reform pledge
By Amy Kazmin in New Delhi

Announcing his plans to leave the public stage after India’s imminent parliamentary elections, Manmohan Singh, the 81-year-old prime minister, insisted he would use the final few months of his tenure to push the country’s stalled economic reform agenda as best he could.

“Reform is not an event, it is a process,” he said on Friday. “So long as we are in power, we will continue to push the cause of reform wherever there is scope for it, and if circumstances permit us to go forward.”

Many Indians dismiss such talk as little more than wishful thinking, saying the premier has no political capital, or energy, left – and that the system will now be bogged down in inertia, as the bureaucracy awaits its new political masters after an election that must take place by May at the latest.

“It’s a dead end situation for the government, and it’s been that way for some time,” said one New Delhi-based economist, who asked not to be identified. “His stock is extremely low, and his ability to push any initiative right now is truly limited.”

But others insist that Mr Singh, and the Congress-led government, could still use their final months in power to take tough decisions that would stabilise precarious public finances, and help revive confidence – and restart the stalled investment cycle.

“In some senses, the prime minister is now liberated,” said Sanjaya Baru, who served as Mr Singh’s media adviser during his first term. “He said he is not going to seek another term, and the party is unlikely to win the next election. This gives him some space to act.

“It’s like a dying man suddenly becomes energetic before death.”

But many Indians have already written off Mr Singh’s decade-long tenure in office as a lost opportunity to push economic and governance reforms that could make it easier to do business, encourage domestic and foreign investment, and put India on a trajectory of higher economic growth.

In recent years, India’s investor sentiment has soured and growth has slowed – the result of slow decision-making, overlapping and conflicting regulations, and confused policies.

At the start of 2013, about $285bn worth of proposed investments in crucial infrastructure projects like power, coal mining, natural gas and roads were all stalled due the government’s institutional gridlock.

In June, New Delhi established an urgent task force to assess large-scale projects – involving investments of $170m and above – and obtain the necessary clearances for them to proceed. As of mid-December, the task force said it had approved 122 projects worth about $65bn.

Industry groups, and investors, expect Mr Singh’s administration to keep pushing on project clearances until the end. “It’s a small step forward,” said Rohini Malkani, chief economist of Citigroup. “It’s not going to result in growth recovering sharply, but at least it’s a step in the right direction.”

In another sign that it had not yet given up the ghost, the government in December abruptly removed the environment minister, Jayanthi Natarajan, who was seen as a major obstacle to large-scale investments, due to her reluctance to make decisions on controversial projects. Her replacement, Veerapa Moily,
promptly vowed to expedite decision-making in the ministry.

India’s reform agenda: What Singh could tackle before the election

● Reduce wasteful fuel subsidies so as to cut the fiscal deficit, without reducing productive capital expenditure.
● Introduce a nationwide goods and service tax (a value added tax) to replace the complicated different indirect taxes that vary dramatically from state to state.
● Clear roadblocks to domestic coal mining, and develop cost-effective transportation infrastructure so as to reduce dependence on imported coal.
● Reform India’s labour laws to make it easier for companies to lay off workers and encourage companies to take on long-term employees.
● Cut red tape to make it easier for companies to do business.

“There has been quite a bit of movement and that gives us a lot of hope,” said Chandrajit Banerjee, director-general of the Confederation of Indian Industry, which has asked that the investment threshold for projects to be referred to the special task force be reduced by half – to $85m.

“You cannot expect major legislative reforms to happen in this period, but it would be important if they can push forward on the clearance of projects which has started happening.”

He said the administration was also now drafting the “implementing regulations” of two crucial new laws, the new companies act, and the land acquisition act, already passed by parliament. The nitty-gritty details of these rules are likely to have a major impact on business and sentiment.

“It would be very important to ensure that these rules are in keeping with the best interests of industry and investors,” Mr Banerjee said. “This can easily be done.”

Among India’s pending legislative agenda is a major overhaul of the archaic tax system, including the adoption of a new value added tax, but there is little optimism that tax reform – which requires opposition consent – will be rolled out before the election.

Other crucial challenges include the need to reduce fuel subsidies to stabilise the government’s precarious finances, without curbing capital expenditure. Most believe Mr Singh will be constrained by the Congress party, now increasingly being directed by 43-year-old Rahul Gandhi, as he prepares to lead the party in
a bitter electoral battle.

“If there is any change to be made, or action to be taken, its coming from Rahul’s side,” said the New Delhi-based economist. “The PM has not been in a decision-making role for a long, long time.”

Yet India’s big business groups insist they have not lost hope that Mr Singh will use whatever time he has left to take tough decisions that would help strengthen India’s macroeconomic foundations.

“If this government is still in the business of governing, they would take decisions,” said YK Modi, a past president of the Federation of Indian Chambers of Commerce and Industry. “Mr Singh is still the prime minister until May or June. He can do wonders in the next four months.”