2 Oct 2012
- Two weeks after high profile reforms to fuel subsidies and rules on inward investment were pushed through the Indian cabinet by Prime Minister Manmohan Singh and Finance Minister Palaniappan Chidambaram, the likely impact of the proposed changes is now clearer. In finally pushing through some reform measures, Singh has successfully united the BJP, most of the Indian left and even some of his own party against him. While not unexpected, this leaves big questions over the package’s actual implementation.
- Mr Singh described the package as his ‘legacy’. In many ways it reflected his inheritance – the structural features of the Indian political economy that have defined his Prime Ministership. For investors in India, the nature of the measures tell us a lot about what worries senior policymakers in India and how they see their freedom of action.
- On fiscal reform, the reduction in fuel subsidies is an attempt to stabilise a system spending money badly and raising insufficient revenue to spend well. The delegation to state governments of decision-making on inward investment in the retail sector was an explicit concession to the intractable deadlock at the national level and the shifting power balance between Delhi and the states.
- At worst, the Singh package provokes an early election and an even more business-sceptical government. At best, it provides a few new incremental steps in the long process of turning the Indian political and economic supertanker.
The views expressed in this note can be attributed to the named author(s) only.