MUMBAI (Reuters Breakingviews) - In India, it was called big bang Friday. That was the day when Manmohan Singh unleashed bold economic reforms. Assuming the Prime Minister’s nerve holds in the face of strong protests, he may even get a taste for such announcements. India’s financial sector, mining industry and labour market would all benefit from a similar approach.
The 79-year-old Singh seems to have finally convinced Sonia Gandhi, the real power behind the throne, that without a revival in growth the chances of the Congress party clinging to power in 2014 are slim.
On their own, each of his major steps: a cut in diesel subsidies and opening up the retail and aviation industries to foreign investment would be considered politically difficult. That’s why it was smart to bunch them together. The opposition has barely had time to catch its breath. Though protests are inevitable, Singh appears to have calculated that the government is sufficiently strong - or its opponents sufficiently weak -- that the Congress party will be able to hang onto power.
If Singh succeeds, he should push even harder. There’s a long list of outstanding reforms that could help raise the economy above its current 5.5 percent annual growth rate.
For example, Singh could dust down the Reserve Bank of India’s roadmap for banking liberalisation, levelling the playing field for foreign lenders. He could also take steps to open the insurance and pensions sectors, though the legislation needed to make such changes may put him off for now.
Then there are bills pending to improve the allocation of land for development and clarify the operation of mines. These would give business greater clarity and help India channel its target of $1 trillion of infrastructure investment over the next five years.
And the biggest elephant in the room is labour market reform. Over 90 percent of India’s workers operate outside formal employment law. Restrictive rules make hiring new workers hugely off-putting. The 10 percent of the workforce who currently enjoy protection may bristle, but the rest of the country would welcome more pragmatic rules.
The message is clear: big bang Friday was a good day’s work. But Singh needs to do more to make up for eight years of inaction.
- The government on September 14 announced that it was opening up the retail sector to foreign supermarket chains and removing the bar on foreign investment in both airlines and broadcasters. It also approved the sale of stakes in four state-run industries.
- The move came a day after the government raised the price of heavily subsidised diesel, increasing prices by five rupees per litre. That translates as a 14 percent rise, including taxes.
- The committee also decided to limit the number of subsidised cooking gas cylinders per household to six per year, a move seen as hitting the poor hard. Any LPG cylinders bought over this ceiling will be at market rates, which could almost double the price.
(The author is a Reuters Breakingviews columnist. The opinions expressed are his own)
Editing by Peter Thal Larsen and Katrina Hamlin