Singh’s Growth Push Imperiled as Graft Scandals Rattle: Economy

Singh’s Growth Push Imperiled as Graft Scandals Rattle: Economy

Indian Prime Minister Manmohan Singh’s latest skirmish with corruption risks setting back efforts to spur growth, worsening a legislative logjam under a government set to pass the fewest bills ever in a full term.

Singh, 80, is grappling with renewed allegations that he has allowed corruption to fester after separate graft probes led to the May 10 dismissal of the law and railways ministers. Parliament ended two days early last week as opposition parties demanding the men’s resignation blocked proceedings, with proposals to open up the country’s pension and insurance industries to overseas investment still stalled.

At stake is Singh’s ability to extend an eight-month push to revive Asia’s No. 3 economy that included allowing more foreign investment in aviation and retail, measures for which parliamentary approval weren’t required. With just the monsoon and winter sessions left this year before a general election in 2014 and India’s expansion at a decade low, the government is running out of time to complete its legislative agenda.“This is going to hinder the economy’s recovery,” said R.K. Gupta, New Delhi-based managing director at Taurus Asset Management Co. “The chances of any meaningful reforms before the elections are gone, that is almost a forgone conclusion now.”

Since Singh’s Congress party won re-election in 2009, the ruling coalition has passed 158 out of 194 bills introduced, on course for the least of any government serving a full five-year term, according to Parliament figures. The coalition has to pass 89 bills in its remaining time, more than half the number achieved in the past thirteen sessions, to even match Congress’s previous term, then the worst legislative record since independence in 1947.

Rupee Declines

Almost 51 percent of the scheduled budget session of Parliament’s lower house didn’t take place because of disruptions, according to PRS Legislative Research.

The rupee has declined 1.8 percent this month to 54.7850 a dollar yesterday. Indian gross domestic product rose 5 percent in the year ended March, the least since 2003, according to an estimate from the statistics agency. Moderating investment, an extended fight against inflation and a drop in exports hurt the economy’s expansion.

The economy probably expanded 4.9 percent last quarter from a year earlier, after growing 4.5 percent in the previous three-month period, according to the median estimate in a Bloomberg survey before data due later this month.

“All these corruption issues must be a net negative for the reform process and for the short-term growth prospects,” said Robert Prior-Wandesforde, a Singapore-based economist at Credit Suisse Group AG. “Spending ministries become more cautious and it is creating a lot of noise which is distracting the parliament from the structural reform measures.”

Six Ministers

Congress party chief Sonia Gandhi forced Singh to seek the exit of the two ministers from his council, the Indian Express reported on May 11. The president’s office issued a brief statement the same day saying on Singh’s advice, President Pranab Mukherjee accepted the resignations.

Rail Minister Pawan Kumar Bansal resigned after the Central Bureau of Investigation earlier this month arrested a member of his family on charges he accepted money to help secure an official a top post in the rail department. Law Minister Ashwani Kumar quit after the CBI told India’s top court last month that he was among officials who vetted a probe report on allocation of coal mines and altered its contents. Both men deny any wrongdoing.

Over the last four years, at least six ministers have resigned after being accused in corruption cases, with the opposition parties claiming this is the most graft-ridden government in India’s history.

Chidambaram Roadshows

The scandals threaten to undermine progress made by Singh’s administration since September to spur expansion and avert a credit-rating downgrade. The steps included trimming the budget shortfall, opening the retail and aviation industries to more investment from abroad and reducing a levy on foreign investors in local bonds.

Proposals for India’s biggest opening to foreign investment since the 1990s may be ready in June, Finance Minister Palaniappan Chidambaram signaled in an interview last month. The minister said then plans to ease caps on foreign direct investment could be submitted to the Cabinet as early as June, and that he had urged the opposition to back pending legislation to open the insurance industry further and allow overseas involvement in pensions.

The finance minister has traveled to major financial centers including New York, London and Tokyo this year, spearheading efforts to attract foreign investment in a bid to bridge the current-account deficit.

‘Short Memories’

He is under pressure to prevent a recurrence of the 1991 financing crisis, which prompted India to pledge gold as collateral for a loan from the International Monetary Fund after foreign reserves slid. The country devalued the rupee then, tackled government monopolies, cut tax rates and let foreign companies take majority stakes in sectors including automobiles and pharmaceuticals to rescue the economy.

“Ultimately people have short memories and we are potentially a year away from the next election,” said Satish Misra, an analyst at the Observer Research Foundation, a policy group based in New Delhi. “Congress knows if they bring inflation down and get the engine of the economy going the damage of the last few years will be greatly reduced.”

Elsewhere in Asia today, Singapore exports fell less than economists estimated in April, while Japan reported machine orders rebounded in March. Data to be published in Europe include the region’s construction output and Spain’s trade balance for March. In the U.S., confidence among consumers probably rose this month, economists forecast before the release of the Thomson Reuters/University of Michigan index.

To contact the reporters on this story: Unni Krishnan in New Delhi at; Andrew MacAskill in New Delhi at

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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