India’s Ground Crew Grimaces

Indian shares paused after an early year 20 percent-plus run on resumed net portfolio inflows as Kingfisher Air, founded by a flamboyant entrepreneur, followed the state airline into dire straits on a crushing debt and back tax load. Exposed banks pressed the government to devise a rescue as the central fiscal deficit again breaches the responsibility law target on economic growth falling below 7 percent. Inflation has moderated to that level allowing the central bank to tweak the cash reserve ratio, but official borrowing appetite sustains higher rates. In aviation, foreign investment in Indian carriers may finally be approved as a partial response, but wariness is embedded after recent reversals of telecom and retail store licenses. Important provincial elections in the coming months will dictate the room for coalition-opposition compromise on such issues, with contests in Uttar Pradesh and elsewhere drawing on appearances from Congress party scion Rahul Gandhi as his mother prepares to transfer leadership. The 40-year old is seen as a future candidate for prime minister and has avoided entanglement in Hindu nationalist quarrels and his age is in marked contrast to the octogenarian incumbent Dr. Singh. While the rupee has recovered ground with a lift from expatriate allocation, the current account deficit stands out in the region amid gloomy industrial output numbers. To buttress the external position and respond to Chinese competition South Asian free trade has received a fresh push after realization that the original SAARC initiative gained minimal traction. A services deal was signed with Sri Lanka, Bangladesh’s textile exports can enter duty-exempt, and bilateral delegations committed to quadrupling the current $2.5 billion exchange with traditional enemy Pakistan.

Diplomats have also tried to broker a solution to the president’s ouster in the tourist haven of the Maldives islands after intervening in another attempted coup 25 years ago. The deposed head Nasheed had been a global advocate for climate change action on evidence of rising sea waters threatening to swallow the Indian Ocean chain. A small foreign aid program has also provided capital goods import and training facilities in Nepal and Afghanistan. It has steered clear of large infrastructure projects which are China’s focus and have displayed a poor track record at home. A recent study by the economic planning body underscored the enduring gap in fixed-investment at under 30 percent of GDP. Public sector banks such as SBI, again seeking recapitalization, have been the main funding sources despite earlier recommendations from the same advisory panel to boost private institutional investor, corporate bond and derivatives depth so that they reach altitude.