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India: Coalition prevaricates at green light for reform

Cutting deficit seen as urgent; More FDI for retail, aviation, power exchanges and broadcasting

Manmohan Singh is no stranger to economic reform. In 1991, following the balance of payments crisis, Singh, then India’s finance minister, freed his country from the so-called Licence Raj, the tangle of regulatory red tape that had long been the cause of economic stagnation.

More than 20 years later, after a period of rapid growth and numerous bumps in the road, prime minister Singh has underlined his credentials as a reformer by unveiling measures aimed at enhancing India’s global competitiveness.

The moves include the opening of the aviation and retail sectors to overseas investors and the sale of stakes in state-owned companies. Specifically, the new measures would allow up to 51% foreign direct investment in the retail sector, 49% in civil aviation and power trading exchanges, and 74% in broadcasting.

The reforms came shortly after a 14% increase in local fuel prices – a crucial change to the government’s fuel subsidy policy that should also contribute to fiscal consolidation.

The actions of Singh and the government were broadly welcomed by the international community but caused controversy at home.

Short-lived euphoria

According to Alliance Bernstein, the euphoria created by the announcements was short lived.

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