After months of inertia, India unveils big bang reforms

Fri Sep 14, 2012 11:21am EDT
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By Manoj Kumar and Matthias Williams

NEW DELHI (Reuters) - After months of dithering on the economy, India's beleaguered government roared back to life in dramatic fashion on Friday, announcing big bang reforms as part of package of measures aimed at reviving growth and staving off a ratings downgrade.

A day after sharply increasing the price of heavily subsidized diesel, the government said it was opening up its supermarket sector to foreign chains and would allow more foreign investment in airlines and broadcasters. It also approved the sale of stakes in four state-run industries.

Facing the threat of having its credit rating downgraded to junk, the Indian government has been running out of time to show it is serious about fixing an economy that has been hard-hit by a global economic crisis and political gridlock at home.

Underscoring the need for speed, India's inflation rate jumped to 7.55 percent in August, mainly from higher food prices, data showed on Friday.

"I believe that these steps will help strengthen our growth process and generate employment in these difficult times," Prime Minister Manmohan Singh said via Twitter.

Infighting in the fragile coalition government led by Singh's Congress party had earlier forced it to shelve the retail and aviation reforms, casting a shadow over India's aspirations to join the world's leading economies.

Signaling that trouble still lies ahead, two major allies - the Samajwadi Party and the Trinamool Congress party - demanded a reversal of the retail reform and diesel price hike. The government has backed down when faced with such pressure in the past.

The retail reform allows global firms such as Wal-Mart Stores (WMT.N: Quote) to hold a majority stake in a local partner and sell directly to consumers for the first time, which supporters say could transform India's $450 billion retail market and tame inflation.   Continued...

People shop for clothes at a roadside store at a market in Mumbai September 14, 2012. India opened its supermarkets to foreign direct investment and allowed foreign airlines to invest in local carriers in a spate of reform initiatives on Friday, a day after New Delhi raised the price of heavily subsidised diesel. REUTERS/Danish Siddiqui