05/26/2009, 00.00
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No radicale economic reforms after the elections

by CT Nilesh
The victory of the congress favours ‘continuity’. Not a total liberalization but just some steps forward for the pension funds and fuel prices., continuing the grants for the price of rice and gas. China continues to be the empire of capitalism.

Mumbai (AsiaNews) - The massive mandate given to the Congress Party in the recent election may raise expectations regarding radical economic reforms in a nation that, first, for forty years had been regulated by socialist type five years plans and, second, in the last twenty years, it was restrained by the necessary alliance with the left parties.

The stock market of Mumbai with its jump of 20% in one week may be an indication of this expectation.

“This is a serious error, writes one of the most read financial expert, Swaminathan Anklesaria Aiyar. The Congress sees its victory as a vote for continuity, not for radical change”.

Many investors abroad are expecting a more liberal policies on Foreign Direct Investment and higher participation in insurance, that now is limited at 26%, and in retail market. But most probably the Congress will continue implementing the populist promises made during the election campaign: cheap distribution of rice at the controlled rations shops, rural development, employment generation schemes, infrastructure and skill development. The Congress is by instinct a left-of-the-centre party and there is no sign that it will change its nature.

The Common Minimum Program, agreed by the components of the United Progressive Alliance (Congress + Left Parties) in the previous legislature, promised huge expenditure on education, health, employment guarantees and rural development. In Andhra Pradesh, one of the states ruled by the Congress, the Chief Minister promised 25 kilos of grains at Rs 3/kilo per month for poor families and 9 hours/day free electricity for farmers. Kerosene and cooking gas will continue to be highly subsidized.  There is no hope that the government will reform labor laws to allow easy retrenchment.

If not immediately but in the long run we can expect some reforms to come not from political decision but from executive action. We can expect relax price controls on petroleum products enabling oil companies to change the price of diesel and petrol. Foreign investment may be allowed in managing pension funds.

Aiyar is of the opinion that  “there are indeed reasons for cautious optimism on the economic front, but radical economic reform is not one of them”. So there is no hope that India will compete with China in manufacturing industry, where labor is much cheaper and it is easier to dismiss the employees .

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