Accessibility links

Breaking News

India's Communist Parties Slow Pace of Economic Reform


India's economy has been on a high growth path in recent years, but economic reforms that could make the situation even better are lagging behind. Analysts say the country's influential communist parties are obstructing economic change.

Supporters of India's powerful communist parties recently led noisy street demonstrations in major cities, demanding the government roll back a nine-percent hike in gasoline prices.

The Congress Party-led coalition government stood fast. It said it had to raise domestic fuel rates to limit the huge losses being suffered by state-run refineries as a result of soaring global crude oil prices.

The government won that argument. But analysts say increasing opposition from two mainstream communist parties is putting a brake on the pace of economic reform in the country. The communists are not part of the Congress-led coalition, but the government cannot survive without their support in parliament.

As a result, Prime Minister Manmohan Singh, who kicked off India's economic reforms as finance minister in 1991 and is a champion of free-market policies, has quietly sidelined several important changes.

Earlier this year, communist opposition forced the government to shelve a plan to reduce food subsidies. Last year, the parties, which oppose privatization, blocked government plans to sell stakes in profitable state-run firms.

T.K. Bhaumik, the chief economist at Reliance Industries, says India's failure to move ahead with tough reforms is discouraging foreign investment in a range of areas.

"Labor reform is a critical necessity, and not much action has been take," he said. "If you are talking of [a] market economy, why can't you talk of market economy for labor, why can't you talk of market economy for agriculture, why can't you talk of market economy for infrastructure, which is another critical area of reform?"

Rigid labor laws forbid large manufacturing units from laying off staff without government approval. As a result, textile manufacturers tend to keep their factories small, and relatively inefficient. Analysts say this is why the Indian textile industry is not witnessing the kind of growth seen in China.

Leftist parties have also blocked the government from easing restrictions on foreign investment in areas such as infrastructure, insurance and retailing.

It was the move away from India's traditional socialist economic policies, started by Mr. Singh and the Congress Party in 1991 and later accelerated by the Bharatiya Janata Party, that is credited with sparking India's current economic boom.

Despite the slow down in economic reform since Congress ousted the BJP in 2004, India's economy is still growing at a rate of around eight percent. But analysts say the communist-led obstructions are preventing the country from attracting the kind of large scale foreign investment that could raise growth to even higher levels.