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Within hours of winning the no-confidence motion that was initiated by leftwing parties – former allies of the current Congress Party-led coalition government – Finance Minister P. Chidambaram said the government was getting ready to push forward the unfinished economic reforms agenda.
"This government has an absolute majority and this gives us the confidence to go forward," Chidambaram said after the government was declared the winner in a voting process filled with drama and allegations. With its new ally, the Samajwadi Party, which supported it in the no-confidence motion, the coalition won 275 votes with 256 opposed.
"We have crossed a major bridge," he added, elaborating that the next point high on the government's agenda is "to take the reforms process further both on economic and social reforms," for which "the government will be approaching other members who are not opposed to economic and social reforms."
Indeed ever since India's Congress Party, after failing to bag a majority of seats in the May 2004 elections, joined hands with the Left to form the United Progressive Alliance government, India's economic reforms process – which started about 15 years ago – has been stymied. Almost every reform measure that had anything to do with the word "foreign" was staunchly opposed and even blocked by the Left allies.
Now that the government is no longer shackled to its communist allies, Indian industry can breathe a sigh of relief.
"We can now expect the government to function better and take decisions that they were unable to take due to interference from the Left," said Rajeev Chandrasekhar, president of the Federation of Indian Chambers of Commerce and Industry, a local industry lobby. "The next three months could see many of the major bills pending in Parliament pushed through."
In fact already the government has started dusting off some of the bills that were stuck due to the Left. These include the Pension Fund Regulatory Development Authority Bill, the raising of a cap on foreign direct investment in the insurance sector, voting rights for foreign investors in Indian banks, and allowing foreign investment in some of the country's retail segments. All of these moves have consistently faced opposition from the Left because they would allow greater foreign participation in India’s economy.
Of these perhaps the insurance bill, which promised to raise the foreign investment cap to 49 percent from 26 percent, has endured the longest wait. It was first introduced four years ago. Similarly, the Left was averse to the pension bill and removing a 10-percent cap on foreign investors’ voting rights – regardless of their investments – in Indian banks. Leftist politicians claimed that foreign investments, which they termed “hot money” would "destabilize” these sectors.
However, the opposition to allowing FDI in select retail sectors like electronics, sports goods and stationery was more protectionist. The Left argued that opening up the retail sector to foreign investment could jeopardize the livelihood of millions of small retailers who are unable to face foreign competition.
But none of these fears seem to hold water anymore; the general feeling is that India needs these reforms, and badly too. "The pending reforms are necessary for India," says Chandrasekhar.
From the economic perspective, the Left's exit may not have come too soon. The economy is getting hammered from all sides – the global oil price surge; inflation, particularly in food prices; slowing industrial growth; and rising fiscal deficits. All of this is resulting in fleeing foreign institutional investors.
"Once (reforms) are undertaken the confidence level, which had been dropping over the last three quarters in the business confidence survey of the FICCI, will bottom out and will put the economy back onto a growth trajectory," says Chandrasekhar.
Nevertheless, not everyone is convinced that the present government – with the “pro-industry” Samajwadi Party as its new ally – will be able to undertake much in the way of social reforms. India's next general election is due next April or May. "Even the most ardent of reformists tend to lose their appetite for reforms as elections approach," says T. T. Ram Mohan, a political analyst and a professor at the Indian Institute of Management.
According to Ram Mohan the reform measures that are under consideration are largely economic, which are not a winning platform in Indian elections. "All parties, whether at the state or the national level, find it more expedient to oppose reforms when they seek votes," he says, adding that the current government may at best resort to more populist measures rather than social reforms in the coming months.
However, the economic environment may not be quite congenial to extensive reforms. Ram Monhan feels that a deteriorating economy could make things even harder for the government, "since rising inflation and slowing economic growth are hardly the most appropriate conditions for pushing through reforms," he says.
Still, there are enough optimists who say that none of these problems are expected to be show-stoppers. "I believe (that notwithstanding some of the hurdles to reforms) we can hope for a reform process to start soon," says Gautam Adhikari, editorial advisor to the Times of India Group of publications.
The good news is that there is political stability, he says. "The coalition partners that the UPA has at the moment are relatively amenable to negotiations, so with smart dealing, it would be possible to implement a lot of things that were not possible until now," says Adhikari.
Meanwhile, the stock markets have preferred to sing along with Manmohan Singh's victory. India's benchmark index, the Sensex recorded its biggest one-day gain in four months on Wednesday, rising by 838 points or about 6 percent.
"For years the markets were trading under many pressures, including political pressures of the Left. Now that the political concern at least is out of the way, investors can look forward to further rallies going forward," commented one stockbroker on the Bombay Stock Exchange.
