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India's Modi burnishes economic credentials with reform blitz

The reforms are seen as some of the most significant since Mr Modi's right-wing Bharatiya Janata Party (BJP) in May scored India's biggest electoral win in three decades - PHOTO: AFP

[NEW DELHI] India's Prime Minister Narendra Modi has unleashed a slew of reforms in the past week, scrapping fuel subsidies, simplifying labour rules and pledging to open coal mining to private players in a bid to kickstart the economy.

The reforms are seen as some of the most significant since Mr Modi's right-wing Bharatiya Janata Party (BJP) in May scored India's biggest electoral win in three decades.

But analysts say the reforms so far represent the low-hanging fruit, and warn Mr Modi does not yet have enough upper house seats to push through more politically sensitive changes that are key to getting growth back on track.

Mr Modi has faced criticism that he has been slow to act on his election promise to revive India's lumbering economy and create much-needed jobs for its 1.2 billion people.

"Mr Modi is determined to make doing business in India more easy," Deepak Lalwani, India director at London-based consultancy Lalcap, told AFP. "That should attract foreign investment."

In a week Mr Modi has reduced paperwork and inspections of factories to ease the burden of manufacturing in India, which is currently at an unenviable 134th on a World Bank ease-of-doing business chart.

In a bow to free markets, his government released diesel pricing from state control, ending a battle for eliminating subsidies on the largest component of Indian fuel consumption.

It also cleared a delayed increase in domestic gas prices, hiking by one-third the amount the government pays natural gas producers to encourage exploration in the fuel-hungry nation.

Economists have long argued India's potential will only be unleashed when it curbs subsidies, relaxes suffocating regulation and rigid labour laws and eases complex rules governing industrial land acquisition.

On Monday the government announced measures to pave the way for private companies to sell coal, helping to break the monopoly of one of the world's biggest mining giants, Coal India.

Mr Modi's government is also readying to sell a five-percent stake in state-run heavyweight Oil and Natural Gas Corp. in the hope of raising US$3 billion, which would help trim this year's fiscal deficit.

India's share market has already reached near record heights as Mr Modi pursues his mantra of "maximum governance, minimum government", seeking to jumpstart growth that fell below five percent last year - half the rate of just a few years ago.

The government plans in the next parliamentary session to scrap nearly 300 outdated laws, many of which were enacted under British colonial rule and contribute to India's notoriously cumbersome legal system.

It has already hiked defence and insurance foreign investment caps to 49 per cent from 26 per cent and announced plans for private-public partnership to build more roads, railway and other infrastructure.

While the reforms so far are the simplest economists say they will reduce red tape and increase India's appeal to investors.

Mr Modi has already appealed to the world to "make in India" as the country seeks jobs for its army of young people.

However, the big-bang reforms, such as amending the industrial disputes act to make it easier to lay off workers, are untouched.

The government cannot push through tough changes yet because the BJP and its allies lack a majority in the upper house of parliament, where state elections determine seat share.

But the ruling party performed well in state elections last week seen as the first major test of its popularity, winning the most seats in elections in western Maharashtra state, home to financial nerve-centre Mumbai.

"Modi's tactics from now until 2016 are to put a BJP government in as many states as possible so that it may be able to have a majority, even without allies," said Lalcap's Lalwani.

"Then it can pass even the toughest reforms which need legislative clearance and, in turn, help lift the economy to a higher trajectory and create badly needed jobs." Economists say they expect more progress on resolving labour issues and bringing in a national goods-and-services tax that will end the patchwork of levies making doing business in India costlier.

"Patience is required... but with the prime minister's free-enterprise ethos, the India of today will be different in a few years," said D.H. Pai Panandiker, who heads the RPG Foundation think-tank. AFP