India Won’t Punish Congress for Policy Logjam, Minister Says

A logjam in Indian policy making that lasted two years won’t determine whether the ruling Congress party forms the next government after an election that’s just over a year away, a cabinet minister said.

Voters have more everyday concerns, Rural Development Minister Jairam Ramesh said in an interview in New Delhi yesterday. “As long as people are getting food at the right prices, they are getting electricity, roads are being built, they don’t have to face corruption with the local forest guard or police official -- policy paralysis be damned,” he said.

Graft charges involving a cabinet minister and coalition infighting stalled Prime Minister Manmohan Singh’s agenda from late 2010, delaying decisions to further open the economy to foreign investment and cut subsidies. The deadlock weighed on an economy poised to grow at its slowest pace in a decade this financial year and left India at risk of becoming the first BRIC nation to lose its investment-grade credit rating.

Ramesh may be right that the majority of the electorate won’t judge Singh’s second term on its delivery of major policy reforms when they vote in a ballot scheduled for next May, said N. Bhaskara Rao, chairman of the New Delhi-based Centre for Media Studies. “But voters are angry about the failure to improve basic services and they are going to hold Congress responsible because they have been in power for almost 10 years,” he said.

The Indian government has missed every annual target to add electricity production capacity since 2004, and the roads agency has so far failed to meet a goal of building 20 kilometers of highways a day. India’s consumer-price inflation accelerated to 10.56 percent in December, the second-highest level among the Group of 20 major economies, according to data compiled by Bloomberg.

Policy Push

Having parted ways with his biggest governing ally, Singh in September began his biggest policy push in a decade, relaxing rules on foreign investment in the retail and aviation industries, raising diesel prices and cutting tax on Indian companies borrowing abroad. He followed that up in October with proposals which must be approved by parliament to allow greater overseas holdings in the pensions and insurance industries, and an overhaul of his cabinet.

The biggest challenge facing Congress leaders is recovering from a series of scandals -- that included the hosting of the 2010 Commonwealth Games, a sale of mobile-phone permits and the allocation of licenses to mine coal -- according to 31.3 percent of people polled last month.

‘Niche Role’

In the Jan. 22-24 survey of 800 voters in eight cities for Outlook Magazine, 41 percent said they would vote for a Congress party headed by its new vice-president, Rahul Gandhi. Meanwhile 38 percent said they would support the main opposition block if it was led by current Gujarat Chief Minister Narendra Modi, who is pitching for the leadership of his party. The poll had a margin of error of 3.46 percent.

“Policy paralysis may not be an issue that resonates with the electorate, you are talking of issues that affect a tiny sliver of investors,” Ramesh said in an hour-long meeting in his ministry.

Foreign investment is not a “locomotive of growth” and plays only a “niche role,” bringing skills, markets and technology to India, he said.

“To make out that India’s growth is crucially dependent on foreign investment is a gross exaggeration,” Ramesh said. The government’s recent decision to allow foreign companies to raise their stake in domestic insurance companies, “is not an issue that is going to set India on fire,” he said.

Rupee Prop

The Indian government today announced a lower-than-expected forecast that the economy will grow 5 percent in the year ending March. The median of 34 estimates in a Bloomberg News survey was 5.5 percent.

India needs foreign investment to narrow a record current-account deficit, and prop up the rupee, which is the worst performing currency among the biggest Asian economies over the last two years, hurting efforts to reduce inflation.

In an effort to woo more foreign investment, Finance Minister Palaniappan Chidambaram toured Asia and Europe last month pledging more policies to boost growth and rein in the budget gap.

Ahead of next year’s voting, the government is set to extend a $13 billion subsidized food program, change laws on the way land is acquired for industry, and has started a system of direct cash benefit transfers for the poorest in a bid to curb graft. Ramesh’s ministry runs one of the world’s biggest jobs programs.

(Updates with growth forecast in 12th paragraph.)
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