Bloomberg News

Chidambaram Faces Stalled Parliament in Bid to Revive Growth

August 06, 2012

Indian Home Minister Palaniappan Chidambaram

Palaniappan Chidambaram, India's home minister. Photographer: Graham Crouch/Bloomberg

Indian Finance Minister Palaniappan Chidambaram will face his first test in trying to rejuvenate a slowing economy when parliament resumes this week and the government bids to end two years of legislative gridlock.

While the July 31 appointment of Chidambaram, 66, to a third term in charge of the finance ministry brings a veteran economic manager to the helm, opposition to proposals to lure foreign investment and hasten road and power projects risks further policy delays as the rate of growth has slowed to a nine-year low.

“There are hopes that Chidambaram’s arrival will bring about change,” said A.K. Verma, a political analyst at Christ Church College in Kanpur in Uttar Pradesh, India’s most populous state. “That’s highly unlikely. We can only live in hope things will be different.”

Setting the stage for the monthlong parliamentary session were India’s worst-ever power cuts last week, which highlighted the added costs of doing business in the nation. The blackouts also raised pressure on Prime Minister Manmohan Singh to break a logjam with his coalition allies that’s stymied an agenda featuring a tax-code overhaul, a bump in private spending on social projects and further opening pension and insurance industries to overseas companies.

The political deadlock meant lawmakers spent just 14 percent of parliament’s previous session considering new laws, according to figures from New Delhi-based PRS Legislative Research, a monitoring group.

Company Profits

Singh’s government, which faces a general election in less than two years, will introduce in parliament the Companies Bill to regulate boardrooms and make businesses spend 2 percent of their profits on social projects, said Parliamentary Affairs Minister Pawan Kumar Bansal. It may also press lawmakers in the session starting Aug. 8 to approve the Direct Tax Code bill that would cut taxes paid by companies by 7.4 percent and simplify a web of levies.

“We have sought co-operation from opposition parties,” Bansal said. Lawmakers are likely to demand debates on a weak monsoon and the power-grid collapse, he said.

Plans to woo foreign investment in India’s multibrand retail sector and aviation, which don’t require parliamentary approval, have been rejected by Singh’s biggest ally, the Trinamool Congress of Mamata Banerjee. She has been joined by the ruling parties of two other large states, Uttar Pradesh and Bihar. Raising overseas investment caps for the pensions and insurance industries would require votes in the legislature.

Share Gains

Trinamool will continue its opposition to plans to allow more foreign investment in supermarkets and pensions during this session of parliament, party leader Sudip Bandyopadhyay said in an interview with the Press Trust of India yesterday.

“Words cannot compensate anymore” after the government failed to deliver on earlier promises of reform, said Jagannadham Thunuguntla, chief strategist at SMC Global Securities Ltd. (GLBS) in New Delhi. “Where is the conviction? They lack ability and will.”

The sluggish economy, which expanded 5.3 percent in the first quarter of this year, and stalled policy making hasn’t impeded an advance in Indian stocks. The BSE India Sensitive Index, or Sensex (SENSEX), has risen 12 percent in 2012, helped by record purchases by overseas investors. The rupee is Asia’s worst performing currency in the past 12 months, plunging 20 percent against the dollar as Europe’s debt crisis and India’s trade deficit hurt demand for the currency.

Chidambaram also faces the possibility of parliamentary protests over his role in determining rules for the allegedly corrupt 2008 sale of mobile-phone permits, a graft scandal that precipitated the paralysis in passing laws.

Auction Urged

The Bharatiya Janata Party, the main federal opposition, and its allies pledged in November to walk out each time Chidambaram, then home minister, addressed the house. The BJP claims the now finance chief enabled the scam, for which the former telecommunications minister is on trial, by failing to insist on a transparent auction of licenses.

Chidambaram said last year he urged an auction of the permits instead of the sale that relied on fees fixed more than six years earlier.

Chidambaram becoming finance minister despite the allegations “is an issue,” Yashwant Sinha, a BJP member of parliament in the lower house and former finance minister, said in an interview. Sinha’s party will hold a meeting today to decide whether to continue protests against Chidambaram.

The government may attempt to push through its new tax code, which could lower the corporate levy on Indian companies such as Reliance Industries Ltd. (RIL) to 30 percent from an effective rate of 32.4 percent.

Land Law

The companies bill will regulate how businesses should operate, including setting fixed terms for directors.

The government is also planning to revive legislation setting higher prices for land it wants to acquire for industrial and infrastructure projects, including those involving private companies. The Land Acquisition Bill has been promoted by ruling Congress party leader Rahul Gandhi.

Protests over land purchases, currently governed by regulations dating back to British colonial rule, have delayed the building of roads and power and steel plants nationwide. Infrastructure bottlenecks are a significant driver of price pressures in Asia’s third-largest economy, according to the Reserve Bank of India.

To contact the reporters on this story: Bibhudatta Pradhan in New Delhi at bpradhan@bloomberg.net; Andrew MacAskill in New Delhi at amacaskill@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net


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