India to Open Retail Business

With bad news proliferating out there, this has been a refreshing development: India will open more segment of her economy.

From Bloomberg,

Indian Prime Minister Manmohan Singh has embarked on the biggest gamble of his second term, pushing through policy changes opposed by members of his own coalition as he seeks to revive the economy and the fortunes of his embattled party.

After two years of stalled policy making and amid slumping support, Singh’s Congress party-led cabinet Sept. 14 allowed overseas retailers to enter India, and said foreign airlines can own minority stakes in local carriers. While the second-largest party in the alliance, Trinamool Congress, vowed to take a “drastic step” if Singh, 79, doesn’t abandon the laws and roll back a diesel price increase, opposition lawmakers called for a nationwide strike over policies they say will trigger job losses and hurt the poor.

“Congress has been committing harakiri by doing nothing,” Satish Misra, a political analyst at the Observer Research Foundation in New Delhi, said by phone yesterday. “They have been pushed around so much that it was time to fight back.”

The architect as finance minister of India’s 1990s economic opening and recently the object of media ridicule, Singh may have judged that rivals unprepared for elections are not likely to try to topple the government, Misra said.

His administration has 18 months until the next election to ease gridlock in Parliament over corruption allegations and restore confidence in its management of an economy growing at near its slowest pace in three years. Warnings of a ratings downgrade to junk status and a 67-percent drop in foreign direct investment in the last quarter are spurring the boldest policy initiatives of a government re-elected in 2009.

Since India joined China to open her economy in the 90s, India’s GDP per capita has ballooned (chart from tradingeconomics.com)

So it’s really not a gamble for Mr. Singh. He recognizes the powers of economic liberalization. Instead resistance to change emanates from those entrenched political forces who doesn’t want to lose their privileges through protectionism and cronyism.

They are the same forces whom has been blaming gold imports for so-called trade deficits where in reality gold has become a fall guy for insatiable spending by politicians.

Economic liberalization is the only antidote to vicious central banking policies.