Indian Prime Minister Manmohan Singh agreed to a parliamentary probe into the sale of mobile-phone licenses, surrendering to three months of opposition demands that had derailed legislation and eroded investor confidence.
“We can ill afford the situation that our parliament is not allowed to function during the crucial budget session,” Singh, 78, said in the lower house of parliament six days before Finance Minister Pranab Mukherjee will deliver his policy statement for the next financial year. “It is in these special circumstances that our government agrees to setting up a joint parliamentary committee,” Singh told lawmakers.
The government’s legislative agenda has been paralyzed since November by protests over alleged revenue losses during a 2008 sale of 2G telecoms permits, with the ruling Congress party’s chief rival, the Bharatiya Janata Party, leading calls for an investigation by a bipartisan panel of lawmakers. The final parliament session of 2010 was the least productive in 25 years. Sushma Swaraj, a BJP leader, said today parliament should start running normally.
India’s benchmark stock index, the Sensex, has lost 10 percent this year, making it the world’s worst performing benchmark index after Egypt and Tunisia, as inflation, the most aggressive monetary policy in Asia, and concerns over prolonged political gridlock and corruption led investors to sell Indian stocks. The index was the best performer among the world’s 10 biggest markets last year, buoyed by strong growth and corporate earnings.
Investors say that even after agreeing to the probe by lawmakers the governing alliance will struggle to regain authority to introduce the changes in the $1.3 trillion economy sought by business leaders when Singh won re-election in 2009. As he begins the third year of a potential five-year term, corruption and sliding support may have further diminished the already reticent Singh’s political stature, they said.
“There is such upside if the politicians could pull their finger out,” said Hugh Young, Singapore-based head of equities at Aberdeen Asset Management Plc, which manages $297 billion of assets. “But one has to question Manmohan Singh’s real ability to drive anything through.”
When Singh’s Congress secured its biggest election victory in 20 years in 2009, investors hoped that it would usher in policies to further open India’s economy. The rupee and stocks rose to record gains the month after the ballot as investors anticipated measures to encourage foreign investment.
Spending on Poor
Instead, Congress headed by party chief Sonia Gandhi has prioritized raising spending on a $9 billion program to guarantee 100 days of work for 41 million rural families and provide subsidized food grains for an additional 100 million poor among its 1.2 billion people.
“The government has not delivered to the extent that it should have in the second term because of a lack of leadership and cohesiveness,” said Jay Shankar, chief economist at Religare Capital Markets Ltd. in Mumbai. “As we move closer to the next election the government is likely to introduce more populist measures.”
Bills to change rules governing the acquisition of land for industry as up to $100 billion in investments remains stalled, including proposed projects of South Korea’s Posco and ArcelorMittal, and force miners to share profits with local communities were delayed late last year.
While the government issued a discussion paper in July saying that allowing overseas multi-brand companies including the world’s largest retailer, Bentonville, Arkansas-based Wal-Mart Stores Inc., and Carrefour SA, ranked number two globally, to sell goods to Indian consumers would lower prices and benefit farmers, Singh has failed to act on a policy that may risk the livelihoods of millions of small shopkeepers.
The prime minister last week in a rare meeting with senior journalists vowed to punish those found guilty of fraud, acknowledging that a political atmosphere dominated by claims of wrongdoing by his ministers had hurt the image of India overseas. In a bid to refocus his government and rejecting media claims that he had become a “lame-duck” leader, Singh said Mukherjee’s Feb. 28 budget will signal a return to the administration’s “reform agenda.”
“We are a functioning democracy and must strive to resolve our differences in a spirit of accommodation and collaboration, not confrontation,” Singh said today. “This, I hope, will renew our confidence in India’s forward march.”
An AC Nielsen opinion poll for the India Today magazine published last month forecast that Singh’s coalition may win 42 seats fewer than the 259 it secured in May 2009 if an election was called.
“It’s good that wisdom has dawned on the government,” Gurudas Dasgupta, a lawmaker of the Communist Party of India, said in parliament. “It’s better to be late than never.”
India’s chief auditor said in November the 2G licenses were sold for an “unbelievably low” $2.7 billion when they may have been worth at least 10 times more. Former telecommunications minister Andimuthu Raja, ministry bureaucrats and company executives have been questioned by the Central Bureau of Investigation. Raja, who has denied any wrongdoing, is now in jail under judicial custody.
India’s economy will probably expand 8.6 percent in the year ending March 31 from a year earlier, the fastest pace since 2008, the Central Statistical Office said on Feb. 7.
Foreign direct investment into India slumped last year, totaling only a quarter of its Asian rival China, the world’s fastest major growing economy, according to United Nations data. Investment in India fell by 32 percent to $23.7 billion in 2010, while in China it climbed 6 percent to $101 billion.