NEW DELHI: India’s embattled Prime Minister Manmohan Singh pushed ahead on Thursday with his make-or-break reform agenda as the government prepared to approve the latest batch of measures to open up the economy.
Despite fierce resistance from opposition parties who are threatening to try to bring down the coalition in the next parliamentary session, Singh appeared intent on more moves aimed at reviving the flagging economy.
At a cabinet meeting later Thursday, the cabinet is set to approve foreign direct investment (FDI) in the insurance and pensions sectors following similar moves for the aviation, broadcasting and retail industries last month.
“Measures like opening the pension sector to foreign investment and raising the FDI cap in insurance to 49 percent will be announced,” a finance ministry official told media on Wednesday on condition of anonymity.
Singh and his reformist new finance minister, P. Chidambaram, have stressed the need to revive foreign and domestic investment to get India’s economy moving again after a slump in GDP growth and worries about the budget deficit.
“The government has to take a number of decisions. As we take these decisions it will be clear that we are on the reform path and we will continue on that path,” Chidambaram told the BBC in an interview broadcast on Wednesday.
“I think we will return to 9.0 percent growth once we address certain fundamental constraints.”Other measures to be announced Thursday include the setting up of a national investment board.
Singh as well as his political boss Sonia Gandhi, the head of the ruling Congress party, face a broad coalition of opposing forces, from political parties hostile to foreign companies to trade unions worried about job losses.
On Wednesday, tens of thousands of landless labourers, marginalised tribal groups and low-caste Hindus started a march to New Delhi to remind the government that hundreds of millions feel left behind by India’s economic development.
Furthermore, the ruling coalition dominated by the left-leaning Congress is now a minority in parliament, having lost an ally who quit over the politically sensitive issue of allowing foreign supermarkets into the retail sector.
The proposed foreign direct investment changes – raising the cap to 49 percent in insurance and allowing foreign ownership of up to 26 percent in pensions companies – must be approved by parliament.
The leader of former coalition member Trinamool Congress, Mamata Banerjee, threatened on Monday to bring a no-confidence motion against the government which could lead to elections before their scheduled date in 2014.
For the time being, however, Singh has succeeded in changing sentiment in India after years of criticism of his policy-making paralysis and a string of corruption scandals that sapped the government’s energy.
The most recent scandal – over the allocation of lucrative coal mining rights to private companies in a process that “lacked transparency and objectivity” according to the national auditor – has slipped from the headlines.
The 80-year-old Singh is seen as having won a struggle within his party on economic policy by convincing the more left-leaning Sonia Gandhi of the urgent need for reform and the costs of failing to change.
India’s growth is bumping along at around five percent – its slowest pace in three years – and the ratings agency Standard and Poor’s warned in June that it could lose its investment-grade rating unless it revives growth and cuts spending.
“It is a huge gamble by the Congress,” Neerja Chowdhury, a political commentator in New Delhi, told AFP. “What goes in Singh’s favour is the support of his own party.”
Some economists have warned however that opening up to foreign direct investment is not a panacea for India’s problems, with labour market reform, improvements in infrastructure and better governance needed more urgently.