More affirmative action underway in India

Asian markets, included India, are likely to digest the overnight US FOMC minutes when trade resumes today. The US Fed's notes reinforced expectations that the rate lift-off was likely at the Dec policy meeting. Since the Oct's review there has been a re-pricing of US rate hike risks, which could hurt risk-uptake in the run-up to the mid-Dec meeting. 

In the meantime, domestic cues in India have been supportive. Following signs that more affirmative action was in the pipeline ahead of the winter parliament session, the government unveiled several measures yesterday. Key decisions included, firstly as a boost to infrastructure efforts, the National Highway authority was given the go-ahead to extend concessionary support to road developers for implementation delays. This is expected to restart around 34 stuck projects. In a similar vein, railway infrastructure projects in four states were given the goahead. 

Next, as a positive for fiscal consolidation efforts, divestment plans will get a boost from the proposed 10% stake in the country's largest mining company, Coal India. This stake sale will be able to single-handedly raise close to half of the public-sector units' divestment target and nearly a third of the overall privatisation target of INR 695bn (0.5% of GDP). Thirdly, as a support to the exports-oriented industries, the interest rate subvention scheme was restored, which will applicable for five years since the start of this fiscal year. Finally, FDI projects worth INR 18bn were approved. More such action is likely in the coming months after regulations in about 15 sectors earlier this month. Measures had included an increase in some sectoral FDI caps, raising the single-window clearance ceiling and easing the sourcing norms, amongst others. 

The broad-based approach to reforms remains in place despite the setback at the recent elections. This should help to sustain optimism towards the government's developmental agenda and provide medium-term boost to growth. 

Alongside these piecemeal measures, an eye will also be kept on how the tougher reforms pan out. Passage of the Goods and Services tax, bankruptcy law and land acquisition (if re-visited) has become key barometers of the government's ability to push through legislative changes. Amongst these much attention is on the GST constitutional amendments, where some softening of stance is expected. Recent developments heighten the risk of stiff resistance, which will require the government to reach out to the opposition to build consensus, especially as gaining a majority in the Upper house is not on the cards.