Manmohan Singh pushed through the most important parts of the original economic reforms programme in his first hundred days as finance minister in the Narasimha Rao government. Singh is back at the finance ministry, though now he is head of the government as well. Will he surprise us with another big bang, this time during the last days of his government before it goes to the electorate?
Such a surprise would be welcome. The government has left itself very little room to manage the slowdown. Weak public finances virtually rule out a huge fiscal stimulus that industry now demands and what other countries such as China have promised. But one last reforms push would do a lot to lift spirits and revive confidence—as well as prepare India for the inevitable recovery in the global economy a few years down the line.
The government’s decision to introduce two key insurance Bills in Parliament this week is thus a sign of hope for all votaries of economic reform. One Bill will allow foreign companies to own 49% of domestic insurance companies after Parliament gives the proposal its nod. A better-capitalized insurance sector will further the cause of social security and help create a market for long-term bonds that infrastructure companies sell to finance new roads, ports and airports.
Insurance reform has been a long struggle ever since the first Bill to create a regulator for this sector was put before legislators a decade ago. The introduction of the new insurance Bills is an important step forward. The Left is fuming. It believes that its diehard opposition to financial sector reforms saved India from the worst of the global crisis. This is rubbish. The Indian policy establishment has always been more cautious about financial reforms than it has been about trade and product market reforms. But the Left controls the major insurance trade unions and is hence unlikely to give in that easily.
Our own hope is that these insurance Bills are the first steps in the Manmohan Singh government’s belated—but welcome—last-minute dash for economic reforms. The government is now free of the the pressure to mollify its erstwhile friends in the Left. It should make the most of this opportunity.
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