The Indian Government provides large subsidies for fuel and pesticides, which for years have contributed to severe deficits in an already tight fiscal situation. During the 2011-12 fiscal year, the fiscal deficit of India accounted for 5.9 percent of its GDP. The Indian Government hopes to increase income and reduce expenditure through economic reforms in order to address the deficit problem. On the one hand, the government hopes to raise funds by selling shares of state-owned enterprises, and it is reportedly considering establishing a trade fund to facilitate the sale of state-owned enterprise shares. On the other hand, as diesel subsidies account for more than half of its subsidies, the Indian Government has decided to increase the price of diesel by 14 percent, largely reducing its diesel subsidies.

Political barriers

The economic reform drive is highly welcomed by the business circle, but has aroused fierce criticism from opposition parties. After Singh's administration launched the reform pact on the retail industry, the sixth largest party in the Indian parliament—All India Trinamool Congress—announced it would quit the ruling coalition, leaving it a parliamentary minority. The move highlighted the fact that India's economic reforms have to overcome political fetters related to institutional factors.

The Indian political system lacks the mechanism of pooling resources to solve major problems. India is marked by coalition politics, which means the major ruling party must rely on the support of smaller parties to form a ruling coalition. Therefore, when the government seeks to promote economic reforms, it must be cautious to act because the major ruling party has to coordinate with other parties. Consensus is difficult to reach due to the excessive diversity of political forces, which has adversely affected the administrative efficiency of the Indian Government. Many economic reforms have thus perished in the political game. For example, the freeing up of the retail sector to foreign investors, which was proposed at the end of 2011, didn't get far off the ground at the time due to strong opposition within the coalition.

India's electoral politics has resulted in a widespread lack of political will to make long-term plans. Excessive emphasis on the short-term goal of "winning the election" has led to a dearth of long-term economic planning. Voters tend to value their immediate interests more than long-term interests. To cater to the whims of voters, political parties often make promises while ignoring the long-term perspective, resulting in lasting structural problems.

In India, departmental interests and group interests often override national interests. Also, departmental policies often contradict each other, which results in the confusion of policies and setbacks in reforms. For instance, in the latest round of reforms, when the Ministry of Finance proposed to set up the Cabinet Committee on Investment aiming to accelerate the examination and approval of economic projects, it was objected by ministries of the environment and labor. Only after fierce wrangling was the proposal finally adopted.

Firm resolve

Just as Rome was not built in a day, neither will economic reforms in India. At present, despite the underperformance of the economic reform package and the voices of doubt at home and abroad, the reforms have taken effect. For instance, Finance Minister Chidambaram noted last year that, as of the end of September 2012, up to $1.37 billion projects had come to a halt because they were not approved in time by the Indian Government. But the latest statistics show that the Cabinet Committee on Investment has so far approved investment projects worth $14 billion in the fields of the oil industry, roads and electricity.

In addition, the Indian Government's determination to carry out reforms should not be underestimated. Singh played a crucial role in the 1991 Indian economic reforms, which contributed to the rapid development of the Indian economy. With the help of Chidambaram, it is possible for Singh and his team to overcome the political shackles to achieve positive outcomes.

As far as China is concerned, economic and trade cooperation is the fastest growing area in Sino-Indian relations. India's economic reforms will provide new opportunities for trade and investment cooperation between the two countries.

The author is an assistant research fellow with the China Institutes of Contemporary International Relations

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