By Matthias Williams
NEW DELHI, Dec 3 (Reuters) - India's stuttering economic
reform programme faces a key parliamentary test this week on
whether to let foreign supermarket chains such as Wal-Mart
Stores set up shop, in a vote that could pave the way
for further measures to revive the economy.
Prime Minister Manmohan Singh's minority government bowed to
opposition pressure last week in agreeing to a vote, ending days
of deadlock in parliament and cheering investors who saw it as a
sign of a renewed policy momentum to come.
News that the government agreed to a non-binding vote helped
Indian shares climb to their highest in nearly 19 months and
bolstered the rupee. But defeat for the ruling Congress
party could see the currency tumble to 56 to the dollar from
about 54, said Abhishek Goenka, chief executive at India Forex
The government opened its doors to foreign retailers in
September as part of a package of measures to stave off a
looming credit rating downgrade, cut a swelling fiscal deficit
and revive the country's investment climate.
While it doesn't need parliament's approval, defeat would be
embarrassing and the government would come under pressure to
roll back a policy that critics say would squeeze existing
retailers and cost jobs.
Whether or not the policy survives the vote will be a
measure of the minority government's agility in pushing its
legislative agenda in the time it has left before a general
election due in just over a year.
If Singh loses, it could also put at risk other reforms
pending in parliament, including measures to inject foreign cash
into the struggling pension and insurance industries. If he
wins, it could hasten their passage and embolden the government
to move ahead with plans including simplifying the tax system.
These are seen as key for reviving investment and slashing
the fiscal deficit, one of the widest among major emerging
economies. At 5.9 percent of GDP last year, India's deficit
earned it a warning from global ratings agencies that it could
lose an investment grade rating for its sovereign debt.
"Reforms stalled in the legislative circuit are vital for
the country to avoid a ratings downgrade," said an editorial in
the Hindustan Times newspaper. "Stuck in the pipe are laws
allowing more foreign investment in insurance and pension funds.
The hope now is that some of the opposition sting will ebb once
the vote on foreign direct investment in retail chains is out of
DEEPER REFORMS WANTED
Singh's government has battled to free up an economy that
was largely run through state-controlled permits and quotas
until the 1990s. But reforms have progressed in fits and starts
in the teeth of fierce political opposition.
The symbolic vote is likely to be held on Wednesday. Singh's
Congress party is expected to muster enough support to win in
the lower house, but could face defeat in the upper chamber.
The government could also face a separate vote on amending
India's foreign exchange rules, which it needs to win in order
to be able to implement policies including retail reform.
Asia's third-largest economy looks set for its worst
performance in a decade, with low growth and uncomfortably high
inflation. Investors are urging the government to accelerate
deeper reforms including simplifying a convoluted tax system and
speeding up clearances for big-ticket infrastructure projects.
"Sadly, India's reform needs are greater than its political
system's capacity to deliver at the moment, and policy
implementation uncertainty remains a key risk," said Jyoti
Narasimhan, senior principal economist at IHS Global Insight.