Monday, April 27, 2009

Indian Communists to Oppose Asset Sales, Foreign Investments

By Cherian Thomas - March 16 (Bloomberg)

The Communist Party of India (Marxist) is opposed to the sale of state assets and easing foreign investment rules in banking and insurance, steps the government considers key to funding infrastructure development.

“The party stands for a complete halt to privatization,” the party, an ally of Prime Minister Manmohan Singh’s government until July 2008, said in its election manifesto. “We support maintaining predominant state control over finance.”

India, hamstrung by a budget deficit that’s widened to more than double the government’s target this year, needs money to improve its congested roads, ports, and other infrastructure. Weakening government finances prompted Standard & Poor’s on Feb. 24 to say it may cut the nation’s credit rating to junk.

“The next government must focus on privatization in a big way,” said Rajeev Malik, regional economist at Macquarie Group Ltd. in Singapore. “Such sizeable budget deficits are unsustainable.”

General elections in India will be held between April 16 and May 13. Counting of votes will be held on May 16.

Acting finance minister Pranab Mukherjee said Feb. 16 that India’s budget deficit may reach 6 percent of gross domestic product in the year ending March 31, compared with a target of 2.5 percent of GDP.

S&P estimates India’s national budget deficit, including off-budget items such as oil and fertilizer bonds and state governments’ deficits, to increase to 11.4 percent of GDP in the fiscal year, from 5.7 percent in the previous year. India regards bonds sold to subsidize fuel and fertilizer as “off- budget” items and doesn’t show them in state accounts.

Farm Loans

Government debt rose as Singh’s United Progressive Alliance, seeking to return to power, wrote off 717 billion rupees ($14 billion) of farm loans and raised the salaries of 5 million government employees by 21 percent. Since December, it has cut taxes and announced extra spending to protect the economy from the global recession.

S&P has a BBB- long term credit rating for India, the lowest investment-grade level.

The CPI(M) said the government should restore long-term capital gains tax, halt tax concessions to companies, increase wealth tax and extract black money from the economy to meet the budget shortfall and finance spending.

The CPI(M), along with three other communist parties, have 59 lawmakers in parliament, and provided Singh with a majority until they pulled out in July because of their opposition to a civil nuclear deal the government was forging with the U.S.

Winning Support

Singh’s government has survived after winning support from other groups, such as the Samajwadi Party.

They communists blocked bills aimed at removing a 10 percent cap on the voting rights of overseas investors in non- state banks and raising the foreign investment ceiling for insurers to 49 percent from 26 percent.

This ensured that India’s banks and insurance companies have been able to remain largely unaffected by the global financial contagion, Prakash Karat, CPI(M) general secretary, said at a televised press conference today.

The CPI(M) will contest the elections as part of a so- called third front that doesn’t include the two main political groups. The alliance will oppose the ruling United Progressive Alliance, led by the Indian National Congress party, and the opposition National Democratic Alliance, led by the Bharatiya Janata Party, which held power from 1998 to 2004.

Third Front

Apart from the CPI(M), the group includes the Communist Party of India, the Telangana Rashtra Samithi, the Telugu Desam Party, the All India Anna Dravida Munnetra Kazagham, the Forward Bloc, the Revolutionary Socialist Party and the Janata Dal (Secular).

Financial reforms, including development of a corporate bond market, pensions and insurance will spur investment and add as much as 1.5 percentage points to India’s economic growth, Lehman Brothers Holdings Inc. said in a report in October 2007.

India’s economy will probably expand 7.1 percent in the year ending March 31, the weakest pace in six years, the government has estimated.