As the government appears to have put on hold its move on foreign direct investment (FDI) in retail, Control Risks, a global consultancy firm that advises businesses on risks involved in countries, has cautioned industry that India might witness stalling of the economic reforms next year. It has also pegged the country’s 2012 economic growth at 7 per cent.
“The Opposition will refuse to cooperate in Parliament to pass contentious but necessary business and financial reforms. Economic reform slowed in 2011 and may stall in 2012,” says a report on RiskMap, 2012. As for FDI in multi-brand retail, it said the plans would be delayed.
In fact, the government has put on hold a recent Cabinet decision to open up multi-brand retail for 51 per cent FDI after the ruling Congress party’s own allies, besides the Opposition, protested against the move.
The Control Risks report says politicking will make it tough for the Congress to secure parliamentary approval for reforms in these sectors though the main Opposition Bharatiya Janata Party does not oppose increased FDI in insurance and opening up the pension sector to foreign investment.
A Bill on increasing the FDI cap from the current 26 per cent to 49 per cent in private-sector insurance companies is pending with Parliament’s standing committee on finance. This is despite a proposal to this effect that came as early as in 2004-05. The Bill was later tabled in the Rajya Sabha only in late 2008 when the Left withdrew support to the UPA government in its first stint over the Indo-US nuclear deal.
The Pension Fund Regulatory and Development Authority Bill, however, is all set to keep FDI decision out of the purview of legislation and keep it with the executive. The report also claims that the BJP will oppose outright the proposed goods and services tax, which is an indirect tax reform.
“Despite this,” the 1975-founded Control Risks claims, “India’s core political stability and the major parties’ lack of interest in reversing previous reforms mean that positive business environment trends will slow but not be reversed.”
As allegations over corruption fly thick and fast, the report also claims that dignity and fairness, according to workers in China and India, have been thwarted by systemic corruption and entrenched privilege. In both countries, “high-profile scandals — often amplified by social media — have drawn attention to various ways in which political and economic systems are rigged to the benefit of well-placed elites”.
As uncertainty prevails in advanced global economic recovery, the report says India, along with Indonesia, can rely on domestic demand. It is likely to grow by 7 per cent in 2012. Indian economy grew by 7.46 per cent in the first three quarters of 2011.
