Though
government plans to allow foreign direct investment in retail have
been put on indefinite hiatus, the first policy move of the new year
was consistent with the theme of market liberalization. As of January
15th for the first time qualified foreign investors (QFIs) will be able to invest in local share markets. Indian stocks were previously
only accessible to foreigners through mutual funds or institutional
arrangements. The permitted the level of investment for an individual investor is limited to 5% of a company's total capital for individuals, with cumulative foreign investments representing up to 10%. This year was a terrible year
for Indian stocks, and the government will have difficulty addressing
the country's growing current account deficit.
Political
dispute over proposed federal anti-corruption legislation splashed
across the front pages of newspapers across the country again this
week. The second largest coalition member of the United Progressive
Alliance (UPA), the Trinamool Congress (TMC), has officially affirmed their intention to vote in opposition unless sections pertaining to
state-administered Lokayuktas (corruption investigation
organizations) are struck. Trinamool leader Mamata Banerjee cites communication problems as
the cause of recent public disagreements between her congress and
other coalition members, most importantly the Indian National
Congress (INC). This included disagreement over a recent proposal to
open retail to foreign direct investment, an initiative Banerjee has
vocally opposed in every election since her expulsion from the INC
and the founding of her party. Despite only controlling 18 seats in
the 543 member Lok Sabha, India's lower house, opposition from the
TMC poses a serious threat in what promises to be a close vote.
If
defeated the bill will be laid to rest in a growing graveyard of
failed anti-corruption legislative reforms. Doomed anti-corruption
bills were presented in 1968, 1971, 1977, 1985, 1989, 1996, 1998, and
2001, with each bill granting the ombudsman various degrees of
authority. The current legislation follows a slew of corruption
allegations undermining the credibility of Prime Minister Manmohan Singh and his ruling party. Among them included a wide variety of allegations surrounding the
contracts and government coordination of the 2010 Commonwealth Games,
and the 2G Spectrum scandal where government officials failed to
collect the actual value of frequency allocation licenses, resulting
in $33 billion in lost revenues. The scandals have fuelled a protest
movement led by 74 year old activist Anna Hazaré, who successfully
galvanized support for comprehensive anti-corruption legislation with
a hunger strike in the spring of 2011.
Anna Hazaré
The
Indian National Congress argues that the new bill provides important
new avenues for enforcement of existing laws, allowing a newly
appointed committee to investigate the Prime Minister (except on
matters of national security), public servants, and any entity that
receives donations from foreign sources in excess of 1 million
rupees. Upon indictment offenders may face up to ten years in prison.
However, Hazaré argues the bill is insufficient in three key areas.
First, the new ombudsman group is selected by the chief justice of
India, a jurist, the PM, the opposition leader in the lower house,
and the speaker of the lower house. Hazaré points out that the
selection committee will therefore be government dominated, or at
least heavily politically influenced. Second, the legislation does
not grant the committee power scrutinize the Central Bureau of
Investigation, India's largest security agency. Finally, Hazaré
alleges that extending the committee's purview to include all
entities that receive a certain level of foreign funding will take
the focus off government corruption.
