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Indian Government Hopes to Speed Economic Reform

  • Anjana Pasricha

India's government says it is persuading its leftist allies to accept the need for faster economic reforms. Communist parties have slowed down the country's liberalization program.

When the Congress Party-led coalition government came to power 18 months ago, there were warnings that its leftist allies would stall free-market reforms that have taken India's economy onto a high-growth path.

That prediction has come to pass. Earlier in the year, communist parties forced the government to scrap plans to privatize a group of large, profit-making, state-run companies that are popularly known as "navratnas," or the "nine jewels."

The communist parties are not formally a part of the government, but they lend critical parliamentary support to the ruling alliance.

Finance Minister P. Chidambaram recently said the government is in talks with the left-wing parties to see if they will allow the sale of smaller state-owned companies.

"I have talked to the left parties and I have, I believe, secured a broad agreement that we could begin to discuss disinvesting small portions of equity in the non-navratnas," he said.

The government wants to sell off part of its stake in state-run companies to keep its fiscal deficit under control, and to raise billions of dollars it needs for infrastructure and rural development projects. But the leftist parties argue that a sale to private owners may eventually cost thousands of workers their jobs.

These parties have also stalled the government's plans to further liberalize the country's fast-growing insurance and banking sectors, largely because of pressure from unions.

But Mr. Chidambaram says he is hoping to convince the communist parties to raise the limit on foreign ownership of insurance and banking companies, from 26 percent to 49 percent.

The finance minister's comments came a week after visiting Treasury Secretary John Snow urged New Delhi to allow foreign companies greater access to its financial sector.

During that visit, Mr. Snow also warned that India could face an economic slowdown if the pace of reform remains sluggish.

"There is a risk of going too fast and a risk of going too slow," he said. "The issue that I think India has is getting that right. And it would look to us that in some of these areas, the greater risk is going too slow."

Analysts say the economic reform process that began in 1991 has brought huge benefits to the economy, leading to higher growth rates, lower inflation and significant increases in foreign investment.

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