Key risks to watch in India

NEW DELHI Thu Sep 1, 2011 10:43am IST

Supporters of veteran social activist Anna Hazare celebrate after Hazare ended his fast in Chandigarh August 28, 2011. REUTERS/Ajay Verma

Supporters of veteran social activist Anna Hazare celebrate after Hazare ended his fast in Chandigarh August 28, 2011.

Credit: Reuters/Ajay Verma

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NEW DELHI (Reuters) - India's lawmakers have recently faced a surge of public anger and mass protests against corruption, and the UPA government's unwillingness to table the Lokpal bill to attack it.

While the ruling coalition and the opposition have reached a resolution on the issue, it has taken up most of the parliamentary session, and key reform bills are unlikely to be implemented anytime soon.

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The cost of insuring against default on 5-year sovereign debt rose in August, along with debt markets elsewhere in the world, as fears of a global recession grew.

Following is a summary of key political risks in India:

CORRUPTION AND PROTESTS

Social activist Anna Hazare went on hunger strike from Aug. 16 for almost two weeks to protest against corruption. His arrest provided a lightning rod for fresh anti-government protests.

The government's drive for reforms has taken a backseat as it has faced an angry public and a more assertive opposition. Prime Minister Manmohan Singh has struggled to deal with accusations of corruption against some of his cabinet members.

Although Hazare reached an understanding with the ruling coalition in late August, protests are expected to continue, and the government's attention could further be diverted from nurturing the economy and controlling inflation.

What to watch:

-- The passage of the anti-corruption Lokpal bill.

-- Hazare's threat of further protests regarding the bill, and his plans to take on parliament on the subject of electoral reforms.

INFLATIONARY PRESSURE AND POLICY RESPONSE

Inflation eased to 9.22 percent in July, although the still-high headline number and persistent price pressures in manufactured goods raised the risk that policy will have to stay tight despite the rising threats to growth.

Most economists expect the Reserve Bank of India (RBI) to extend what has been an aggressive 18-month policy tightening spree.

The country is still unable to get a grip on high prices and the 11 rate rises since March 2010 have only dragged on growth. Spending remains high, while tax revenue growth projections are clouded by weaker economic prospects.

Many investors have fled the Mumbai stock market. With losses of around 20 percent since the start of the year, it is one of the world's worst performing major markets in 2011.

What to watch:

-- Review of monetary policy by the RBI, due Sept. 16.

-- Meeting of the central bank and finance ministry to finalise the government's borrowing schedule for the second half of the current fiscal year.

PARLIAMENT AND REFORMS

The main opposition Bharatiya Janata Party (BJP) is attacking the government on issues of corruption and high prices. The BJP's criticism of the ruling coalition's handling of Anna Hazare's protests and his arrest led to suspensions of parliament most days in the second half of August, seriously disrupting lawmaking.

As a result of this legislative paralysis, it is extremely unlikely that the government will in the near future be able to introduce a nationwide Goods and Services Tax (GST), and to amend land and mining laws to fast-track industrial projects.

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:

-- Any statements and actions on reform bills during the remainder of the session, especially GST, which needs bipartisan support to be passed.

-- Updates on other reform bills, including those for land acquisition, retail reforms, and financial sector reforms.

LAND ACQUISITION DISPUTES

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

The Allahabad High Court has overturned the acquisition of several hundred hectares of land from farmers in Greater Noida, outside New Delhi, hitting plans to build tens of thousands of apartments for India's rapidly expanding 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 had promised a new law that would calm protests by giving farmers market prices or better for their land, but the bill has not yet been tabled.

What to watch:

-- Whether the land acquisition bill is passed in the final few days of the parliamentary session, due to end on Sept. 8, and its final form.

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

(Editing by Daniel Magnowski)

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