Singh Caps Year of Failure With India Anti-Graft Law Stymied

India's Prime Minister Manmohan Singh
Manmohan Singh, India's prime minister. Photographer: Pankaj Nangia/Bloomberg

Prime Minister Manmohan Singh failed to win passage of his anti-corruption bill as an uproar broke out in India’s upper house of parliament, capping a year of setbacks that stirred concern over a wrecked economic agenda.

Proceedings were adjourned late yesterday after a lawmaker snatched papers from a minister and flung them across the chamber. The leader of the main opposition Bharatiya Janata Party in the upper house, Arun Jaitley, accused the government of scripting the disturbance as it realized it was unable to win a vote on the measure that would create a graft-fighting agency.

The rebuff is the latest disappointment for Singh, 79, whose championing of free-market policies two decades ago helped India become the second-fastest growing major economy. Allegations of corruption in his cabinet triggered mass protests this year, while a failure to contain inflation and a reversal on foreign investment in the retail industry sapped confidence in his administration.

“This is an annus horribilis for the government and the worst thing about it is that the problems are of their own making,” said Samir Arora, founder of Singapore-based hedge fund Helios Capital Management Pte, referring to the ruling Congress party’s failure to bring along its allies. “The government is in complete disarray,” Arora, who focuses on investments in India, said.

Parliamentary Affairs Minister Pawan Kumar Bansal said more time was needed to consider 187 amendments to the bill that were proposed by both opposition parties and allies of the government. The bill passed in the lower house on Dec. 27.

‘Running Away’

“The government is running away from the house because it is in a hopeless minority,” Jaitley said. “A government which did not have the numbers in the house has consciously choreographed” events so as to avoid a vote, he said.

A spokesman for Singh’s Congress party, Janardan Dwivedi, denied Jaitley’s accusations and said the government’s rivals hadn’t been serious about wanting to pass a bill to counter graft. “There was a problem of a time limit,” he said. “Had the opposition cooperated, the bill could have been passed.” The winter session of parliament had been extended by three days until Dec. 29 to allow for debates on the so-called Lokpal bill.

The setback may reinvigorate demonstrations led by anti-corruption campaigner Anna Hazare, who called off his latest fast to demand tough anti-corruption laws a day early on Dec. 28 after finding fewer supporters than he attracted for an earlier effort this year.

Ally Anger

Hazare, 73, grabbed headlines in August with a 13-day hunger strike that prompted Singh’s government to agree to consider many of the demands presented by activists.

Proposals for a corruption ombudsman have been introduced to parliament nine times since 1968 without being passed. The government, which is 28 seats short of a majority in the upper house, failed to win the support of one of its largest parliamentary allies, the Trinamool Congress.

“This is a shameful day for India’s democracy,” said Derek O’Brien, a Trinamool upper house lawmaker, adding his party couldn’t back the bill because it infringed on states’ autonomy. “The government handled this situation very badly.”

The failure to pass the Lokpal bill is symbolic of a year during which Singh’s administration has been unable to clinch parliamentary support for promised policies to overhaul a justice system clogged with millions of cases, change rules on how farmland is acquired for factories and protect officials who expose fraud.

Singh Silent

All are backed up in a legislature that this year passed just 22 laws, the second-fewest since 1952, according to the New Delhi-based PRS Legislative Research.

Singh, who was in the chamber, made no statement and there was no indication whether parliament will meet before its next session scheduled to begin in February. The prime minister’s efforts were undone in part by opposition from his party’s allies, an echo of what happened to his proposal to let foreign companies buy majority stakes in Indian retailers.

That move, suspended Dec. 7, would have let in companies including Wal-Mart Stores Inc., with the aim of helping overhaul a national distribution system whose inefficiencies see 40 percent of fruit and vegetables rot before they can be sold. Singh said in an interview this month that he plans to revive the measure after regional elections early next year.

Bureaucracy Slashed

The prime minister’s record of attempts to unshackle the economy from regulation, bureaucracy and corruption date back to his tenure as finance minister in the early 1990s, when he dismantled government monopolies, cut import tariffs and welcomed foreign investment.

Corruption is an emotional issue in India, where at least 12 whistle-blowers were killed and 40 assaulted after seeking information under a new Right to Information Act aimed at exposing local graft, according to data compiled by Bloomberg from January 2010 through mid-October 2011. Enacted by Singh six years ago, the legislation became the most powerful tool for fighting wrongdoing in politics and business, with 529,000 requests filed in the year through March.

With the legislation to set up the federal anti-graft agency, Singh failed to overcome resistance from his allies, opposition parties and social activists. The debate became the most divisive political issue since his government came close being toppled in 2008 over a civil nuclear accord with the U.S.

State Polls

The ruling Congress party faces state elections from January, including one in Uttar Pradesh, home to a sixth of all Indians. The polls will offer an indication of the government’s support two years before national elections are due.

Economic growth is slowing after the central bank raised interest rates by a record pace in its effort to tame the fastest inflation among BRIC nations, which include Brazil, Russia and China. India’s economy grew 6.9 percent in the three months through September, the weakest since the second quarter of 2009.

The central bank’s campaign has had little impact, with the benchmark wholesale price index climbing 9.1 percent in November from a year before, compared with the 9.5 percent pace at the start of this year. By comparison, China’s inflation rate was 4.2 percent in November.

The rupee has weakened about 16 percent against the dollar this year, Asia’s worst performer, as an exodus by investors sent the Sensex index of stocks down 23 percent, more than the 18 percent drop in the MSCI Asia Pacific Index.

Telecoms Sale

Opposition to the Lokpal bill centered on two main criticisms: the lack of direct control over the country’s leading criminal investigation agency that parties said robbed the legislation of powers to punish the corrupt; and that it infringed on the rights of states by forcing them to mold local graft-fighting agencies to the federal law.

The ombudsman that Singh’s government wanted to create would have been able to scrutinize the prime minister except over issues of national security. It wouldn’t have had direct oversight of junior bureaucrats responsible for everyday acts of petty corruption that blight business and governance.

Former telecommunications minister Andimuthu Raja, bureaucrats and business executives are on trial accused of conspiring to award cellphone permits to ineligible companies in a 2008 sale that India’s chief auditor says might have cost the government $31 billion in foregone revenue. Other charges have been brought over contracts for the hosting of last year’s Commonwealth Games.

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