Key political risks to watch in India

NEW DELHI Mon Aug 1, 2011 2:54pm IST

Demonstrators stand with an Indian national flag during a protest rally against corruption in Mumbai April 8, 2011. REUTERS/Vivek Prakash/Files

Demonstrators stand with an Indian national flag during a protest rally against corruption in Mumbai April 8, 2011.

Credit: Reuters/Vivek Prakash/Files

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NEW DELHI (Reuters) - India's coalition government has shown some signs of shaking off the paralysis it has suffered for months, but political wrangling will limit its thrust for reforms during the parliament session that begins on Aug 1.

Corruption charges and high inflation continue to dog Prime Minister Manmohan Singh's government, while mid-July's bomb blasts in Mumbai killed 18 people, and raised questions about how India's security services failed to prevent the attacks.

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Following is a summary of key political risks in India:

PARLIAMENT AND REFORMS

The main opposition Bharatiya Janata Party (BJP) has vowed to continue taking on the government on issues of corruption and high prices, which could lead to frequent suspensions pf parliament, seriously disrupting lawmaking.

Few expect the government's proposals to introduce a nationwide Goods and Services Tax (GST), and to amend land and mining laws to fast-track industrial projects, will be approved by parliament in the current five-week sitting.

While there is no major immediate threat to India's pace of economic growth, which is expected to be around 8 percent in the year to March 2012, the wait for structural reforms is preventing more rapid expansion.

What to watch:

-- Parliamentary sessions.

-- Opposition statements and actions on reform bills, especially GST, which needs bipartisan support to be passed.

LAND ACQUISITION DISPUTES

Protests by farmers against land acquisition are re-emerging as a factor that could disrupt plans to industrialise and urbanise India rapidly.

A court has overturned the acquisition of several hundred hectares of land from farmers outside New Delhi, hitting plans to build tens of thousands of apartments for India's rapidly growing middle classes.

Protests continue against land acquisition for South Korean firm POSCO's proposed $12 billion steel mill, while land given to Tata Motors for a car plant has been taken away to be returned to farmers.

The government has promised a new law that will take the edge off protests by giving farmers market prices or better for their land, but there is no guarantee it will be passed by parliament during its August sitting.

What to watch:

-- Whether the land acquisition bill is passed by parliament, and its final form.

-- Further agitations against the POSCO plant and the government's response.

-- Court decisions. A court will decide on Aug. 17 whether to strike down another batch of land purchases for apartment-apartments, and has given until then for real estate firms, the government and farmers to reach a settlement.

CORRUPTION, PROTEST, AND PARALYSIS

A raft of high-profile corruption scandals in Singh's second term have sharpened public anger against his government. As he struggles to deal with accusations, the government's drive for reforms has taken a backseat.

Anna Hazare, a popular Gandhian social activist, has vowed to embark on a hunger strike from Aug. 16 to protest against corruption, which could be a lightning rod for fresh anti-government protests.

Hazare's fast in April had been widely popular amongst a public fed up with graft and had forced the government to draft a new anti-corruption bill. But Hazare slammed the proposed law as being toothless and said he would push for a tougher law.

The risk is that as the government scrambles to deal with protests, its attention could further be diverted from nurturing the economy and stamping down inflation.

What to watch:

-- Hazare's planed August fast.

-- The passage of the anti-corruption bill.

RISING INFLATION, SLOWING GROWTH

India is still unable to get a grip on high prices and the eleven rate hikes since March 2010 have only dragged on growth. Spending remains high, while tax revenue growth projection are clouded by weaker economic growth.

A long period of high prices will raise discontent and with it the probability that the government will take costly measures to combat them, as well as maintain its controls on fuel prices.

The central bank, one of the world's most hawkish, is willing to sacrifice some short-term growth to cool prices, and the government is resigned to further rate hikes.

Wholesale price inflation, the main gauge of prices in India, stood at 9.55 percent in June, above the central bank's comfort level of around 5 percent, and may hit double digits after fuel price hikes in end-June.

Many investors have fled the Mumbai stock market. With losses of 10.7 percent, it is one of the world's worst performing major markets so far this year.

What to watch:

-- Official statements and data on inflation and growth.

-- Oil prices. Higher crude prices will mean a larger subsidy bill as well as greater inflationary pressures.

(Editing by Daniel Magnowski)

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Comments (4)
Binod wrote:
If the BJP feels they are true Indian they should allow the Government to function so that some prosperity may happen to India. What they are doing, if the same thing is done by Congress when they come to power, what will happen to India, it is any body guess. Please get above cheap politics and allow the country to proper.

Aug 01, 2011 6:08pm IST  --  Report as abuse
Binod wrote:
If the BJP feels they are true Indian they should allow the Government to function so that some prosperity may happen to India. What they are doing, if the same thing is done by Congress when they come to power, what will happen to India, it is any body guess. Please get above cheap politics and allow the country to proper.

Aug 01, 2011 6:09pm IST  --  Report as abuse
Ramamurthi wrote:
The government is paralysed by corruption. Almost all welfare schemes continue to be mismanaged, with the benefits diverted to vested interests. Food prices are heating up, mainly due to manipulations by food cartels supported by powerful politicians. The government is unable to control these drains, thanks to its preoccupation with the defence of scams. Also the government needs these vested interests to support them in the parliament in order to counter any attempt by the opposition to topple the government.In effect there is no semblance of government, which is the cause for the economic ills now facing the nation. The private sector is feeling jittery about the survival of this government. No wonder they are trying to divert their attention to acquiring assets abroad, keeping their local business in hibernation. The government is trying to blame the inflation volatility to the international situation and adopting text book methods of rate increases to control it, in order to cover up its failures in governance. The only way to rectify the situation is for the government to accept its faults and initiate decisive actions to root out corruption.

Aug 01, 2011 10:04pm IST  --  Report as abuse
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