India Steps Up Policy Overhaul With Land Law Approval: Economy

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

India will take more steps to boost the economy in the coming weeks, the finance minister said, after the government approved changes to a century-old land law and set up a panel to speed up infrastructure projects.

Amendments to the colonial-era Land Acquisition Act may help the government curb often violent protests that have stalled projects for industry and highways. A cabinet committee yesterday also allowed the establishment of an infrastructure panel and a 30 percent reduction in the sale of airwaves.

The approvals add momentum to Prime Minister Manmohan Singh’s policy agenda by addressing transportation and energy bottlenecks that have handicapped growth in Asia’s third-largest economy. Singh has already won support to open the economy to overseas retailers, the biggest embrace of foreign investment in a decade, as he bids to repair the government’s reform credentials before national elections in 2014.

“The key here is that the government clearly wants to keep up the reform momentum,” said Robert Prior-Wandesforde, an economist in Singapore at Credit Suisse Group AG, who has covered the Indian economy for almost seven years. “It wants to signal to the Reserve Bank of India, as well, that it’s committed to a series of economic reforms of the sort that the RBI would appreciate.”

India’s economy expanded 5.3 percent in the three months ended Sept. 30 from a year earlier, slowing to match a three-year low. Central bank Governor Duvvuri Subbarao, in the last policy meeting in October, resisted calls from Finance Minister Palaniappan Chidambaram for lower interest rates to spur growth.

Stalled Investments

The prime minister in mid-September curbed fuel subsidies, allowed foreign investment in aviation, and last week won votes in both houses of parliament to permit the entry of foreign supermarket chains. Singh will now head a new panel aimed at speeding up approvals of infrastructure projects.

There are as much as $18 billion of stalled investments in India, two government officials with knowledge of the figures told Bloomberg News last month. The prime minister is seeking $1 trillion in commitments to build and modernize highways, ports and power plants from 2012 to 2017.

After at least two years of debate, the cabinet yesterday agreed to make it mandatory for companies buying land to win the approval of 80 percent of landholders. For public-private partnership projects, 70 percent of the landowners need to give consent. The law will be applied retrospectively in certain cases and also seeks to boost the money paid to farmers.

Maoist Rebellions

Abuse of the 1894 law that allowed the state to seize land at cheap rates, has led to clashes between farmers and provincial administrations, and fueled Maoist rebellions in some mineral-rich states, including Chhattisgarh and Odisha. Among investments postponed is a $12 billion project first proposed by South Korean steelmaker Posco in 2005.

“I am confident that the steps we have taken and some more steps that we will take in the next few weeks will help turn the Indian economy around,” Chidambaram said today, adding that it is too early to say if these measures are yielding results.

India’s inflation unexpectedly slowed in November, with the benchmark wholesale-price index climbing 7.24 percent from a year earlier, after rising 7.45 percent in October.

The yield on the 8.15 percent Indian government bond due June 2022 fell 2 basis points to 8.14 percent. The BSE India Sensitive Index climbed 0.5 percent, while the rupee gained 0.1 percent to 54.525 per dollar. The currency has declined more than 3 percent this quarter.

The MSCI Asia Pacific Index added less than 0.1 percent to 127.29 as of 8:02 p.m. Tokyo time. China’s Shanghai Composite Index climbed 4.3 percent to 2,150.63.

Tankan Index

Elsewhere, Singapore’s October retail sales fell 1 percent from a year earlier, data showed today, while big Japanese manufacturers are the most pessimistic in almost three years, the Bank of Japan’s quarterly Tankan index showed.

The Reserve Bank of Australia may need to cut its benchmark rate further as the local dollar’s resilience impedes growth, the Organization for Economic Cooperation and Development said.

Euro-area inflation slowed in November as energy-price growth eased, a report showed today. The annual inflation rate in the 17-nation currency bloc fell to 2.2 percent, in line with an initial estimate on Nov. 30, from 2.5 percent in October. In the U.S., industrial production probably climbed 0.3 percent in November from a month earlier, according to a Bloomberg survey.

Slowest Pace

India’s monetary authority predicts the $1.8 trillion economy will expand 5.8 percent in the year ending March 31, which would be the slowest pace since 2003, according to government data. Growth will rebound to 6.7 percent in the year through March 2014 from an estimated 5.5 percent in the current fiscal year, according to Goldman Sachs Group Inc.

India yesterday also reduced the reserve price of mobile spectrum by 30 percent, with hopes of drawing buyers like Bharti Airtel Ltd. and Vodafone Group Plc after last month’s auction raised just 25 percent of the government’s 400 billion-rupee ($7.3 billion) target. Bids will provide revenue needed to cut the budget deficit to 5.3 percent of gross domestic product by March 31 from 5.8 percent in the previous 12 months.

Finance Minister Chidambaram today urged lawmakers to support the government’s reform initiatives.

“If we do not succeed in fiscal consolidation there is a risk of downgrade to junk status,” he told parliament. “That will be a terrible consequence. We can’t afford that.”

Singh’s minority government needs the backing of regional parties to secure approval for the land acquisition law, which was championed by Rahul Gandhi, who will lead the Congress party’s election campaign ahead of polls in 2014.

“The prime minister is beginning to think more and more about his legacy,” Prior-Wandesforde said. “The measures we saw in September and these more limited steps yesterday in part are an attempt to signal that he is a reformist, has been a reformist and that is what he wants his legacy to be.”

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