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Divided Opposition Gives Hope for India Reforms

05 October 2017
The Wall Street Journal

NEW DELHI – India's second wave of economic reforms is facing a fractured opposition, building hopes that New Delhi may manage to push its proposals on insurance and pension through Parliament.

Signals from political parties are conflicting on the federal Cabinet's decision Thursday to allow more overseas investments in insurance and open up the pensions sector to foreign investors.

That wasn't the case when New Delhi announced the first round of reforms last month, when it raised the subsidized price of diesel and allowed foreigners to hold stakes in multi-brand retail stores. While opposition parties held nationwide protests against the steps, which they said were against the poor and could cause job losses, the Trinamool Congress withdrew its support to Prime Minister Manmohan Singh's coalition government after he refused to roll back the measures.

The Trinamool Congress and the left-leaning parties have strongly criticized the latest measures as well. But the Bharatiya Janata Party, the main opposition party, seemed to tread cautiously, fearing a strong stand against the steps could backfire as it had proposed some of these measures on previous occasions.

"We have not been anti-reforms. In fact, we have taken reforms forward. We were the ones to introduce FDI (foreign direct investment) in insurance," said Prakash Javadekar, a spokesman for the BJP. "As far as the latest increase in the FDI limits in insurance and pension funds is concerned, we have yet to see the fine print."

Shiv Visvanathan, a professor at the Jindal School of Government and Public Policy, said the Congress party, which leads the government, has the initiative now.

"The opposition parties have been caught flat-footed," he said. "They know the country needs economic reforms to kick-start growth and get out of economic jail, and they don't want to be seen as blocking these."

India's Cabinet Thursday approved raising the limit on foreign ownership of local insurance firms to 49% from 26% and allowing overseas investors to own up to a 49% stake in domestic pension fund managers.

These latest proposals need to be approved by Parliament, unlike the previous ones that required just Cabinet clearance.

The series of pro-business steps within a short span of time underlines the government's urgency to boost economic growth that has slowed to less than 6% from more than 8% in recent years.

Mr. Visvanathan said BJP's reactions to the reforms were not surprising, given that a large part of their electorate is urban voters who stand to benefit from an insurance industry which has more and varied products and serves a larger portion of the population.

Analysts say the retail issue was different.

The criticism was that smaller shops would be forced to close down in the face of stronger and more-moneyed global supermarket chains setting up shop in India. It's different in the case of insurance and pension, where more funds could mean more options for an expanding and increasingly wealthier middle class. And the poor would also benefit if insurance and pension schemes reach them.

Also, with federal elections due by May 2014, political parties are cautious.

"Yes, we have been--still are--against FDI in retail, but we aren't anti-reforms altogether," said Rajendra Chaudhury, a spokesman for the Samajwadi Party which often backs the government in its policy steps but isn't part of the ruling coalition.

"So far, the party is not opposing or even supporting Cabinet plans to attract foreign investment in the insurance and pension," he said. "FDI in retail would directly affect businesses of thousands of poor farmers and traders."

The party will finalize whether to oppose or support the bills on insurance and pension in Parliament just before its next session commences in December, Mr. Chaudhury said.

Naseem Siddiqui, a senior leader of the Bahujan Samaj Party, declined to comment on the issue.

The Samajwadi Party and the Bahujan Samaj Party together have 43 members in Parliament and the government is counting on their support to survive after Trinamool Congress withdrew their support.

The Dravida Munnetra Kazhagam, which is part of the ruling coalition with 18 Parliament members, said the party isn't totally opposed to foreign investment. "It's already there in the industry... We are only opposed to FDI in multi-brand retail sector," spokesman T.K.S. Elangovan said.

"They (the government) have chosen to go full steam ahead and put the ball in the opposition's court, asking them to convince their voters why economic steps should be opposed," said B.G. Verghese, a political analyst at the Center for Policy Research.

Still, the government would face a belligerent Mamata Banerjee-led Trinamool Congress in Parliament. Friday, Ms. Banerjee described the latest steps as "anti-people" which "will make lifelong savings of individuals totally insecure."

The government would also have to guard against the "whimsical" members among the Samajwadi Party and the Bahujan Samaj Party whose views tend to fluctuate all the time, said Mr. Visvanathan.

But the fact that nearly all political parties don't want mid-term federal polls due to their individual political compulsions could help the government steer the latest measures through Parliament, he added.