How the Lame Duck Indian Government suddenly get the balls to implement Unpopular Reforms

The Indian Government has been enmeshed in a never ending series of scandals and scams. The government constantly fighting the endless attacks on it by the opposition and allies alike has been paralyzed letting the economy go to the dogs. The economic growth has almost halved due to this policy freeze as well as the general global slowdown. However in the last couple of days the Government has developed the balls to go ahead with some unpopular reforms which were hanging fire for a long time. This step comes even as the Congress Party is under attack in a massive mining scam which is implicating top party leaders for looting the country of its natural resources.

Indian Supreme Court Blasts the Government

The low level of trust in the Indian Government’s investigative and vigilance agencies was revealed when India’s Highest Court, the Supreme Court of India blasted the Government for its choice of the Central Vigilance Commissioner. India has been rocked by a series of Housing Loan, Telecom and Land Scams recently implicating top politicians, bureaucrats and even army generals and admirals. However no one expects anyone significant to be prosecuted as the prosecutors themselves are compromised. It is openly known that the Central Bureau of Investigation (CBI) is totally controlled by the ruling party at the center. The Income Tax and Enforcement Directorate also serve as puppets of the Government being selectively used against opposition politicians and businessmen.

“If we have to go down, we have to go down fighting,”

In India reforms have generally been implemented under major distress because otherwise there is no push factor for politicians to alienate their constituencies when all is going relatively well. Even though UPA 1 went ahead with some reforms, the second stint of the Government went quiet as the economy was doing well. India’s big bang economic reforms of 1991 took place against the backdrop of a major fiscal crisis in which India had to mortgage its gold to get foreign currency to pay for imports. With the ruling party at the center under siege from all sides, perhaps the leaders thought that things could not become possibly even worse and went ahead. The reforms which are being now opposed by its allies are:

a)      Raising the prices of diesel which is heavily subsidized and capping the LPG subsidy to middle class households

b)      Allowing FDI in aviation and multi-brand retail

c)       Divesting minority stakes in a number of state owned firms.

DNA

Prime Minister Manmohan Singh said at the meeting that the time had come for big bang reforms. “If we have to go down, we have to go down fighting,” he said.The cabinet on Friday cleared 51% Foreign Direct Investment (FDI) in multi-brand retail stores.In another major decision, the government also cleared FDI in aviation by foreign carriers.Cabinet has raised the FDI cap on various streams of broadcast services by up to 74%.The government also approved sale of its minority stakes in four public sector firms — Hindustan Copper, Oil India, MMTC and Nalco — to raise up to Rs15,000 crore.

NY Times

The Cabinet’s decision came as a major surprise and immediately sparked new optimism that a government plagued by scandal was finally breaking out of the political paralysis that had stifled reforms for months.

The Cabinet decided to allow foreign firms to own a majority stake in multi-brand retailers here for the first time. However, individual states would have the right to decide whether to allow the retailers to operate from their territory, according to government officials.

U.S.-based Wal-Mart, British-based Tesco PLC, French-based retailer Carrefour and others have been interested in entering India, a country of 1.2 billion people where retail is the second-biggest industry behind agriculture.