Parliament set to wrestle reforms amid muted hopes

NEW DELHI Fri Jul 29, 2011 12:41pm IST

A view of Parliament building is seen on its opening day in New Delhi June 1, 2009. REUTERS/B Mathur/Files

A view of Parliament building is seen on its opening day in New Delhi June 1, 2009.

Credit: Reuters/B Mathur/Files

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NEW DELHI (Reuters) - Parliament is poised to tackle thorny, though pivotal economic reforms when it reopens next week including bills to trim the tax burden on firms and fast track industrial projects, but political wrangling could strangle hopes for swift progress.

Amongst the proposed bills are those to streamline multiple taxes now hobbling businesses nationwide through a goods and services tax (GST) and to bolster payouts to poor villagers from industrial projects developed on rural land.

Analysts say it's a crunch moment for India to improve its business climate and realise its vast, though stilted potential.

Hopes, though, for an immediate breakthrough are low.

"It doesn't appear there's any likelihood of parliament being quiet and intelligent discussion taking place. It's more likely to be a bazaar scene," said D.H. Pai Panandikar, head of New Delhi-based think tank RPG Foundation.

As is often the case in India, domestic political tussles may trump development priorities with the main opposition Bharatiya Janata Party (BJP) likely to disrupt proceedings and instead challenge the Congress-led government over a slew of corruption scandals and high inflation.

"(The bills) may become very controversial. I don't think it'll be easy to pass them," Panandikar told Reuters.

The Indian economy, which roared to 8.5 percent growth in 2010/11, is showing signs of a slowdown and analysts say Prime Minister Manmohan Singh's government needs to usher in a second-generation of reforms to build on growth unleashed by liberalisation of the economy two decades ago.

Despite obvious economic benefits, there remains a lack of political consensus within and outside the ruling coalition, with populist parties worried reforms may alienate its core voter base amongst farmers and the rural poor.

Protests and land squabbles have held up major projects from a $12 billion steel mill by South Korea's POSCO to plans for tens of thousands of apartments outside New Delhi.

"When we take a bill to the parliament we hope it will be passed but we cannot put a deadline," said Law Minister Salman Khursheed. "We all hope that the bill will be passed as soon as possible, but we cannot anticipate (when)."

The land bill, along with other proposals to share mining royalties with local communities and to expand a scheme to give cheap foodgrains to the poor, is pivotal to Congress' chances of cementing its rural voter base ahead of national polls in 2014.

Despite the food bill posing a huge fiscal drain, possibly doubling food subsidies to more than $22 billion, and the mining bill on profit sharing likely to deter investors, they're being championed by powerful Congress chief Sonia Gandhi and her son, Rahul, seen as a prime minister in waiting.

BOLDER STEPS NEEDED

There are signs the Singh government may be shaking off its policy paralysis including a recent fuel price increase, and moves to allow greater foreign investment in supermarkets in India's potentially lucrative retail sector.

Investors, however, want far bolder steps.

"There will come a point when they will have to address those issues. Eventually there will be constraints on growth, and they're probably holding back growth as of now," said Andrew Kenningham, an India economist at London's Capital Economics.

India is also watching the fate of the tough anti-graft Lokpal bill which was promised to placate popular social activist Anna Hazare whose April hunger strike succeeded in stirring public support for an independent ombudsman to crack down harder on entrenched public corruption after a string of scandals including a multi-billion dollar telecoms scam.

"We will expose the misdeeds of the government with new vigour inside and outside the parliament," said BJP leader Ravi Shankar Prasad said.

But the BJP, which has blocked past parliamentary sessions over issues from a nuclear deal with the United States to corruption, is itself reeling from a mining scandal in Karnataka that has ensnared several important officials.

(Additional reporting by C.K. Nayak; Editing by James Pomfret)

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