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November 20, 2012
The 2012 India 20: Policy Changes Spur Optimism
Government revives reform efforts under Chidambaram and sees mutual funds as a vehicle for promoting growth.
By Niraj Bhatt
Indias fund managers are a hardy breed. After all, theyve had to persevere through tough times in recent years as a wave of regulatory changes and a significant slowdown in the economy have dented confidence and diminished assets. But lately, hints of a turnaround are in the air.
The biggest change has come from New Delhi, where a ministerial reshuffle has raised hopes that the government will renew its commitment to economic reform after a period of stasis. The Congress Partyled United Progressive Alliance government had been embroiled in corruption scandals related to the staging of the 2010 Commonwealth Games, the awarding of mobile telecom licenses and cheap land grants, among other things. The scandals stymied the coalition governments legislation agenda just as global pressures hit the Indian economy. The countrys growth rate slowed to 6.5 percent in the fiscal year ended March 31 from 8.4 percent a year earlier; growth slowed further to 5.5 percent in the April-June quarter.
At the end of July, Prime Minister Manmohan Singh called Palaniappan Chidambaram back as Finance minister in a bid to break the political impasse over reform and jump-start the sputtering economy. Chidambaram, who had served as Finance minister for four years before moving to the Home Affairs Ministry in 2008, has moved swiftly to bolster confidence and revive investment. Among other measures, he has pushed through an increase in diesel fuel prices, opened the countrys retail and airline sectors to foreign investment and raised the limit on foreign ownership of insurance companies to 49 percent from 26 percent. The moves have sparked an improvement in sentiment, with the Bombay Stock Exchanges benchmark Sensex index rallying by 13 percent between late July and late October. ....