India’s Groaning Anti-Graft Chasms
Indian stocks continued their malaise as the region’s laggard as monthly industrial growth halved, confirming the latest quarter’s slower 7.5 percent GDP gain, and anti-corruption campaigner Hazare won government concessions after a hunger strike mobilized followers disappointed by Prime Minister Singh’s Independence Day speech acknowledgement that he lacked a “magic wand” against the scourge. His address endorsed strict punishment and legal and regulatory strengthening as opinion surveys charted a 5 percent swing away from ruling coalition backing. Business and financial commentators have drawn unfavorable contrasts between Singh’s current tenure and his bold liberalization strides two decades ago in office, while speculation also mounts about the future relationship with the Congress Party, with its leader Gandhi receiving medical treatment abroad for an undisclosed ailment. Her son Rahul may take charge to help regain economic policy momentum and also counter terrorism jitters following another bombing at a prominent Mumbai site well before scheduled 2014 parliamentary elections. The exchange showed $1.5 billion in August portfolio outflows as earnings fell short of still steep average valuations and the rupee also slid beneath 45 to the dollar despite central bank intervention and a firm interest rate stance determined to quash 9-percent inflation. Family conglomerates like Ambani have delivered lower returns and encounter regular controversy with conduct at home and abroad, while banks have also come under the microscope with a spike in nonperforming loans thought to be far above the reported 3 percent of the total with lenient accounting and provisioning rules. New consumer focus has just begun to sputter, and wholesale borrowing overseas has become constricted with Asia debt market reversal. Plans to open the sector to greater private and international participation have sparked worker protests and been diluted, although a shift could boost efficiency and infrastructure finance scope. Proposals to diversify pension fund allocation from state bonds have been sidetracked as well, with the fiscal deficit again due to breach the original target and hit 5 percent of GDP on subsidy and tax reform delays. Oil price falls should cushion the effect on both the budget and balance of payments, although FDI weakness still hobbles the capital inflow needed to offset the chronic goods trade gap.
Diplomatic sparring with Pakistan despite cordial bilateral visits has endured in the wake of economic and security worries as the stock market there has also descended into the doldrums, with the US threatening to suspend military aid post-Bin Laden, and Karachi still experiencing widespread power cuts and violence prompting talk of a military takeover of the commercial capital. The IMF has refused to extend new lines and the Obama Administration is mulling assistance overhaul that may follow recommendations outlined in a recent think tank document which mentions the importance of engaging fund managers and private creditors to preserve precarious partnership.
