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Indian Government Expected to Revive Economic Reform After Confidence Vote

By Anjana Pasricha
New Delhi
25 July 2008

The Indian government is expected to revive an economic reform agenda following its victory in a confidence vote earlier this week. Anjana Pasricha has a report from New Delhi.

When the Congress-led coalition government came to power four years ago, it promised to open the economy in sectors such as insurance, banking and retail. But communist allies stalled those plans.

But since left parties parted ways with the government, hopes have risen that the country's economic reform agenda will get a new lease on life.

The government, which survived a confidence vote earlier this week with the help of new political partners, has already promised to carry forward the reform process.

Economists say the government could revive plans to sell part of its equity in public sector companies to shore up its finances.

There could also be some good news for foreign investors - foreign investment in the insurance sector is likely to be raised from 26 percent at present to 49 percent.

However more controversial reforms are expected to remain on the backburner.

Economist D.H. Pai Panindiker, who heads an independent research group in New Delhi, the RPG Goenka Foundation, says the government is unlikely to concede to a long-standing demand of industry to change India's archaic labor laws.

"They will definitely stay away from labor reform, which can create a lot of uncertainty or some kind of apprehension among some sections of society," he said. "For example if you make labor a contract, it may create some dissatisfaction in the working class."

The government is also unlikely to open up the retail sector to large foreign chains such as Walmart. So far only foreign retailers selling single brands such as Nike are allowed in the country. There is widespread opposition to large retail chains from owners of millions of mom and pop stores, who fear that these chains will threaten their livelihood.

Political analysts say the government, which is already grappling with high inflation, is no mood to do anything that might alienate voters when general elections are less than a year away.

Nevertheless, Indian industry is optimistic that the economy will get fresh momentum at a time when many fear that the high growth witnessed in recent years might be tapering off.

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