(Removes extraneous word 'managing' in paragraph 1)
By Frank Jack Daniel
NEW DELHI Dec 5 India's economy is likely to
grow at the slowest rate in a decade this year despite a spurt
of economic reforms, and a busy electoral calendar will make a
gaping fiscal deficit increasingly difficult to manage over the
next few months.
RATINGS (Unchanged unless stated):
Following is a summary of key political risks in India:
ELECTIONS AND ECONOMY
India's economy is set for its worst performance in a decade
after three consecutive quarters of growth near 5.5 percent.
High government spending has led to a fiscal deficit that
economist say is likely to hit 5.6 percent this year,
exacerbated by a fall in revenues.
Prime Minister Manmohan Singh is in a tight spot. He needs
to slash spending on popular subsidies and encourage investment
through politically tricky reforms to revive growth ahead of a
general election due early in 2014.
But with its eyes on the vote, the government is also
promising to present a generous budget in the 2013/14 fiscal
Ratings agencies Standard & Poor's and Fitch have threatened
a downgrade if the fiscal deficit is not tamed.
An important test will be the election in Gujarat, the
thriving industrial state run by potential opposition candidate
for prime minister Narendra Modi. Modi is popular and likely to
win, but a decent performance by Singh's Congress party could
encourage the government that its recent reform agenda is
electorally palatable. A poor performance could strengthen
anti-reform voices in the party. The election results are due to
be released in late December.
Finance Minister P. Chidambaram has vowed not to let the
deficit pass 5.3 percent of GDP - a tall order given the
political pressures and weak demand for some of his
revenue-raising projects such as a recent failed sale of 2G
What to watch:
- The government's performance in a series of state
elections, including Gujarat.
- Future sales of government assets and new plans by
Chidambaram to meet his budget.
REFORMS IN PARLIAMENT
In September, the government announced a flurry of reforms
aimed at attracting more foreign investment and cutting back on
budget-busting subsidies. Markets reacted well, but fierce
opposition from parties on the left and right has raised
concerns about whether the government has enough support to
enact its plans.
"The focus has shifted, it's not now on the announcement,
it's on the implementation," said Rupa Rege Nitsure, chief
economist at the Bank of Baroda.
The government has bowed to intense opposition pressure and
agreed to a parliamentary vote on its decision to let foreign
supermarkets set up shop in India. A defeat would not be binding
but would increase pressure on the government to drop the policy
to allow in brands such as Wal-Mart Stores Inc.
Critics say the policy will cost jobs in local shops and
hurt farmers. The government says it help modernize India's
dysfunctional food distribution system and slash inflation.
The agreement to vote has ended a parliament logjam and
could clear the way for the passage of less controversial bills
aimed at injecting more cash into the flagging insurance and
Markets are likely to respond positively to those bills
winning approval in parliament, but in the longer term the
government needs to speed up decisionmaking for infrastructure
projects, overhauling the tax system and reducing its swollen
deficit to revive capital investment.
A plan to create a cabinet level "national investment board"
to fast-track stalled road and power projects is itself caught
up in political wrangling. Critics say the board would have too
What to watch:
- The outcome of the December vote on supermarkets, where a
win would be a big boost for the government's reform plans.
- The passage of insurance and pension bills in parliament.
If they pass the government will have proved it can carry out
- The progress of the national investment board, which the
government says is close to being established.
(Reporting By Frank Jack Daniel; Editing by Daniel Magnowski)