India ratifies key spending legislation

By Nigam Prusty NEW DELHI, Reuters

India’s ruling coalition forced a key spending bill through parliament, which remained deadlocked on Wednesday over demands by the opposition for a probe into one of several graft scandals to hit the government. Parliamentary approval for the additional spending bill of about US$9.8 billion would ensure, among other things, interest payments on government debt and subsidies on food and fuel.

The bill was passed by a voice vote in parliament, allowing the government to bypass a three-week deadlock between the ruling Congress party-led coalition and opposition parties, who are demanding a joint probe into an alleged telecoms license scandal that may have cost India US$39 billion in potential revenue loss. A separate bribes-for-loans scandal, which implicates state and private lenders, as well as several sizeable companies, is also being investigated, in addition to other scams, including one linked to the Commonwealth Games.

Although there is no threat to the stability of the Congress party-led coalition government, the scandals have eroded its political capital since an impressive election victory last year, and become a test of how Prime Minister Manmohan Singh tackles corruption.

The deadlock in parliament is also more of a concern for foreign investors than corruption, as it means longer-term financial reforms will be stalled, potentially hurting India’s break-neck economic growth. Wednesday’s move to push through the spending bill underlines a toughening of stand by the government which feels a wider parliamentary probe into corruption would be seen as capitulation and give the opposition political ammunition.

It could also signal a government strategy to pass pending bills, including one to make land acquisition for industry easier, through voice vote during the rest of the current session that ends on Dec. 13.

The additional expenditure plan is over and above the expenditure sanctioned in the budget of 2010-11. It is the second additional expenditure plan by the finance ministry. In a bid to ease the deadlock, the head of India’s main anti-corruption watchdog is being removed from overseeing investigations into the telecoms scandal, a top government lawyer told the Supreme Court on Wednesday, a move seen as an attempt by the government to underline transparency. Chief Vigilance Commissioner (CVC) P.J. Thomas’ impartiality had been questioned by the court as he was a former top telecoms ministry bureaucrat and has a corruption charge pending against him. “The CVC will recuse himself from the 2G (telecoms) spectrum investigation,” Solicitor General Gopal Subramaniam told a two-judge Supreme Court bench.

But the latest government move may not be enough as the opposition forced parliament shut for the 14th straight day on Wednesday, a deadlock that has weakened the ruling Congress party and stalled spending and reform bills.

Despite the scandals, India remains a favored investment destination, especially for businesses hit by weak U.S. and European economies, and the market impact has largely been limited to specific sectors.