Arab Today, arab today india reforms cheered but impact still uncertain
Last Updated : GMT 22:28:13
Arab Today, arab today
Arab Today, arab today

India reforms cheered, but impact still uncertain

Arab Today, arab today

Arab Today, arab today India reforms cheered, but impact still uncertain

New Delhi - AFP

India's reforms blitz has cheered markets and changed perceptions of the government but the outcome is far from assured, with the nation a long way from returning to a high-growth path, analysts say. Since mid-September, Prime Minister Manmohan Singh's Congress-led government has opened the retail, broadcasting and aviation sectors and proposed inviting foreign investment into the insurance and pension industries. But some of this deregulation, which the media has dubbed the country's second reform "big bang" since Singh as finance minister began opening India's economy to the world two decades ago, may not have much immediate effect. "The announcement is symbolically significant, partly because the reforms have been under discussion for years and partly because the decision shows evidence of sustained (government) momentum," said Eurasia Group analyst Anjalika Barali. But they may be "short on impact," she added. Just nine of India's 29 states say they will implement the retail reform and allow in foreign supermarkets, with the others fearful of the effect on the hundreds of thousands of small store owners. And while US giant Wal-Mart plans to open its first outlet in the next 18-24 months, other large retailers like Britain's Tesco and France's Carrefour, which initially expressed interest, are now struggling financially, analysts say. In the aviation sector, the government has permitted foreign carriers to take a stake in Indian airlines, but the sector is drowning in debt and struggling with high prices of fuel and airport landing rights. Kingfisher Airlines, owned by flamboyant liquor tycoon Vijay Mallya, is desperate for a foreign buyer, but is finding it tough to attract interest. The Centre for Asia Pacific Aviation, a consultancy, says it does not expect "any foreign airline to invest in Kingfisher in its current state with its massive ($2.5-billion) debt burden, crippled fleet and poor employee morale". Finally, the government's plans to raise foreign ownership caps in the massively underpenetrated insurance and pension sectors must still clear India's fractious parliament. The reforms have already cost the government its parliamentary majority with the exit of a key ally who has threatened to bring a no-confidence motion against its former partner when the house reopens next month. It could be "back to the old brick wall," warned CLSA economist Rajeev Malik, referring to the gridlock in previous parliamentary sessions. As it slashed its growth forecast for the Indian economy this year to 4.9 percent, the International Monetary Fund said on Tuesday that the "outlook for India is unusually uncertain". The IMF's 2012 forecast for Indian economic expansion was its lowest in a decade, the institution said in its World Economic Outlook report. The moves to open up sectors of the economy to foreign investment also fall short of addressing the so-called "structural problems" holding back the development of India's economy, Asia's third biggest, economists say. Rigid labour laws discourage companies from hiring, antiquated land acquisition rules make setting up industrial projects difficult, while infrastructure from roads to power is old and insufficient. Red tape and corruption are also huge problems for businesses and the government still runs large areas of the economy, including banks, mining companies and energy groups. Subsidies on everything from fuel to fertilizers have also blown apart the government's budgeting, with a long-delayed move to hike the price of subsidised diesel as part of the reform package seen as a small move in the right direction. But with general elections in 2014 and two state polls looming, the Congress-led government "knows its limits," said Ajay Bodke, strategy head at India's Prabhudas Lilladher investment house. "The government has swung round perceptions of itself to being action-oriented rather than asleep," he said. "But they haven't addressed the really hard stuff like substantially reducing subsidies that is the most politically treacherous." Investors have so far liked what they have seen from Prime Minister Singh and his reformist finance minister -- shares are up nearly 10 percent since the end of August -- but justifying the optimism is the government's next challenge.

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