Singh’s Bold Political Gamble on Opening India’s Economy
Sometimes, raw courage is the only way to break political gridlock. With a flurry of bold executive decisions yesterday on foreign investment -- the most extensive policy changes since his government was re-elected in 2009 -- Prime Minister Manmohan Singh of India has rediscovered his reformist zeal.
India’s consumers, media watchers and flyers will benefit from the Cabinet’s approval of plans that allow foreign companies such as Wal-Mart Stores Inc. (WMT) to take a 51 percent stake in multibrand retail, raise the cap on non-Indian stakes in broadcasting to 75 percent from 49 percent, and allow foreign investors to own as much as 49 percent of national airline carriers. Singh’s move is all the more remarkable as a similar proposal was opposed last year not just by his political opponents in Parliament, but also by some of his ostensible partners in the governing coalition led by his Congress Party.
Today’s liberalizing measures also followed a surprisingly large increase -- almost 14 percent -- in the price of diesel fuel, which will help the government to narrow the country’s deficit to 5.1 percent of gross domestic product for the year ending in March, from 5.8 percent a year earlier.
Of course, it didn’t hurt that Singh had a bad cop in his corner to add urgency to the case for reform: the threat by foreign credit-rating companies to downgrade India’s investment- grade credit rating to junk status because of slower investment and economic growth.
Singh and his recently appointed finance minister, Palaniappan Chidambaram, deserve huge credit for defying the political demagogues who all too often in recent years have been able to set the terms of India’s economic debate. The biggest such “frenemy” in Singh’s coalition is Mamata Banerjee, the combative chief minister of West Bengal, who is giving the government 72 hours to reconsider its decision. Her kneejerk opposition to foreign investment has been poor comfort for her contituents. West Bengal had the 8th highest unemployment rate among India’s states and will require a massive bailout by the central government over the next few months just to pay its government workers.
Singh is betting that he will be able to hold together his coalition. Let’s hope he’s right, and that the willingness to take that kind of principled, existential gamble wins the day.
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