Will India’s Upper House stall India’s economic reforms?

August 30, 2014

NEW DELHI - Recent events have sown seeds of doubt in some quarters on how strongly India’s new Modi-led government will be able to deliver on reforms – and these doubts could morph into scepticism about prospects for India’s growth recovery, according to a research paper by ANZ Bank.

Pointing to government difficulty in passing its proposed hike in the FDI limit in the insurance sector to 49% from 26% - it is stuck in the Upper House of the Parliament – ANZ says Modi’s lack of a majority in the Upper House could delay important legislation. 
ANZ says it continues to believe that a rush of ‘big bang’ reforms is unlikely to come in a hurry  - but notable action on ‘low hanging fruit’ is likely initially.

“Importantly, we (still) believe that, while still only incipient, a growth recovery is under way and the balance of risks to our growth forecast (for India) of 5% for 2014 are somewhat to the upside,” ANZ says. “With the implementation of ‘low hanging fruit’ and speedier decision-making, growth is likely to gather more steam in 2015 to get closer to 7% by 2016.

“There is no escaping the fact, however, that for this growth improvement to be sustained in the medium term without large macro imbalances developing, ‘big’ decisions have to be taken.

“Key among others would be establishing a stable and improved framework of environmental clearances and land acquisition, increasing domestic energy supply (opening coal to the private sector for one – we expect the new Government to implement this in its current term), revamping the investment model for infrastructure, pushing up agricultural productivity, and overhauling food distribution and storage. www.live.anz.com (ATI).