Congress skates on thin parliamentary ice

The government's ambitions to boost economic growth through pro-market legislation may be sinking into parliamentary quicksand amid a slew of stalled bills, reluctant allies and an emboldened opposition.

In just the last week, the ruling Congress party has seen its landmark women's and nuclear liability bills stalled despite the left-of-centre government enjoying a parliamentary majority after 2009's resounding re-election.

With clumsy party management and a degree of political haughtiness after that victory, Congress managed to lose some parliamentary allies, annoy others and galvanise a divided opposition who believe the ruling coalition majority is softer than it seems.

While the women's bill was socially rather than economically significant, a message of weakness was sent out.

In doubt now is the government's ability to pass other important laws, from the introduction of foreign universities into India to the opening up of insurance to foreign companies, the latter languishing in a standing committee.

The nuclear bill, which limits nuclear firms' liability in case of industrial accidents, will delay entry of US firms into India's USD 150 billion nuclear market and is a setback for industry, where power blackouts can be a huge drain on resources.

"The government's biggest mistake has been arrogance," said Mukhtar Naqvi, vice president of the main opposition party, the Hindu nationalist Bharatiya Janata Party (BJP), which supported the women's bill to reserve a third of parliamentary seats to females.

"That has meant many parties that were willing to support bills in the parliament have now lost confidence in the government."

"That will make passing reforms through parliament more difficult in the future."

Recovering quicker than expected from the global crunch, India's economy is forecast to grow at more than 7% this year and nearly 9% in 2011.

But investors question its sustainability unless policies are introduced to push investment into India's dilapidated roads, ports and airports and allow India's large savings to be channelled into productive returns.

Bills that liberalise insurance and banking look increasingly off the table as does legislation to open up retail, which could resolve supply bottlenecks contributing to high inflation

Finance Minister Pranab Mukherjee's budget last month relies on growth over spending cuts to reduce the fiscal deficit from a 16 year high of 6.9% and help cut record borrowing.

Not all reform will need legislation, and the government has already passed cuts in fertiliser subsidies and raised fuel prices to reduce the fiscal deficit. Sales of stakes in state firms are also underway.

But a weakness in parliament sends a signal across India's political spectrum. Plans to streamline tax revenues depend on each of India's 28 states agreeing, and political bickering among its allies will do nothing to help that.