Indian reforms to stay on course, vote to set pace

Analysts say the new Govt will press ahead with economic reforms, but the pace will depend upon strength the winning party can muster in polls.

India will press ahead with its on-off economic liberalisation regardless of who wins the upcoming national elections, but the pace of reform will be dictated by the strength the winning party can muster, analysts say.

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In their election manifestos, both the Bharatiya Janata Party (BJP) and Congress vowed to continue with economic reforms, including controversial ones such as state company privatisation, giving analysts confidence that the direction is irreversible.

Nearly 675 million Indians will vote in five stages from April 20 to May 10 to elect a new Government in the world's second-most populous nation.

It is a rare moment in the election history of the world's largest democracy: it is only the second time in nearly half a century that economic and development issues have pushed aside traditional ones, such as caste, religion and corruption.

The BJP-dominated National Democratic Alliance (NDA), which is led by Prime Minister Atal Behari Vajpayee and which opinion polls say will coast to victory, promises to push ahead with reforms to put Asia's third-largest economy on an eight to 10 per cent annual growth path.

"If the NDA gets 290 plus seats and the BJP over 190 seats, we expect reforms to accelerate," said regional head of investment consulting at Credit Suisse Financial Services in Singapore, V Anantha Nageswaran.

The main Opposition, Congress, which started India's economic reforms more than a decade ago after a balance-of-payments crisis, also promises to boost growth to double-digit levels in order to eradicate poverty and unemployment.

"No matter which party or coalition comes to power, the basic structure of reforms will be the same," said professor at the Institute of Economic Growth (IEG), BB Bhattacharya. "There may be some differences on the extent and pace of reforms."

After more than a decade of free market reforms under various coalitions from the centrist Congress to the right-wing BJP, India's economy is reaping the benefits, surging 10.4 per cent between the October-December quarters of 2002 and 2003.

Its average growth rate over the past five years has been only 5.3 per cent.

But real changes have only been made in fits and starts. Despite support from every single Union Government, the decade-old reform drive has often sputtered along as detractors, mainly from regional parties, have prevented drastic measures.

Due to the opposition, successive Governments have been unable to prune subsidies, reduce support prices on farm products such as cane and wheat, push through labour and interest rate reform, or tax the agriculture sector, which comprises a quarter of gross domestic product.

"The test cases will be reforms in the civil aviation and telecom sectors, which the BJP leaders have been talking about in recent days," said Credit Suisse's Nageswaran.

MONSOON BOOST

Drenching monsoon rains last year, the best in a decade, helped India's agriculture-reliant economy last year.

The NDA has capitalised on this through its "India Shining" campaign, which reminds citizens of the strength of the economy and urges them to make the most of opportunities now available.

"One can hope that with a return to power they can do much more, if they get a clear mandate," said Singapore-based senior Asia economist with Deutsche Bank, Sanjeev Sanyal.

"A strong mandate one way or the other is good and specifically good if it is the NDA...as they are fighting on the reforms platform."

But analysts say the new Government will have to bite the bullet if it is serious about the next stage of reforms.

"No political party is bold enough to tackle subsidies on electricity, fertiliser and food," said Bhattacharya, adding that cuts were necessary: "The subsidies lead to various distortions and enhance India's fiscal problems."

A combination of tardy reforms and growing subsidies have been blamed for India's $53 billion fiscal deficit at the Centre and state levels, representing more than a 10th of the nation's annual GDP.

Though a diluted form of privatisation through sales of small stakes in India's "red chips" -- large state-run companies -- is narrowing that gap, analysts felt the benefits would be lost if the Government did not dispose of firms that haemorrhage money.

"What about the several loss-making companies, hotels, Indian Airlines, Air India?" Bhattacharya said. "They are selling the family silver and leaving the skeletons behind."