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The $12-billion (U.S.) foreign investors have poured into Indian equities this year is not a gift – it's a bet that Finance Minister Palaniappan Chidambaram will keep his promise to lift the country's GDP growth from its 10-year low. But the government can't deliver without lawmakers doing their part. The problem is that India's national parliament, never a bastion of efficiency, has simply stopped working.
The parliamentary session that began on Feb. 21 was repeatedly disrupted after opposition parties demanded the resignation of Prime Minister Manmohan Singh. He is facing allegations of impropriety over the government's allocation of coal mining blocks and telecommunication spectrum. More legislative time was lost in angry exchanges, walkouts and adjournments after a court criticized the government for trying to influence the findings of an investigation into the coal scandal.
By the time proceedings were adjourned on May 8, parliament had yet to approve the government's Oct. 4 decision to raise the foreign investment ceiling in the insurance industry, or its plan to allow overseas investment in India's pension business. Altogether, 116 government bills are suspended in a legislative vacuum, according to PRS Legislative Research. These include legislation that seeks to streamline acquisition of villagers' land for private industry, an issue that has hobbled large investments including a steel mill project by South Korea's Posco. Also stuck is a bill that would amend the constitution and pave the way for a nationwide goods-and-services tax, already several years late.
As the 2014 general elections draw nearer, the stalemate could worsen. After all, the opposition has a rich menu of scams and scandals with which to embarrass the government. Even if overseas investors are unperturbed by India's political theatre, they must nonetheless worry about the effect it has on local sentiment. Domestic investors sold a record $10-billion of equities last year, even as foreigners bought $24-billion, according to Citigroup research. Locals have been net sellers in 2013, too. The opposing views cannot both be right. Legislative apathy just might ensure that overseas investors blink first.