January 19, 2011 / 8:13 AM / 10 years ago

Scandal-hit India PM skirts major cabinet changes

NEW DELHI (Reuters) - Indian Prime Minister Manmohan Singh tweaked his cabinet line-up on Wednesday, sparking criticism the government was shying away from battling graft scandals and high inflation, and dimming prospects for major economic reforms soon.

Major portfolios such as finance, defence, home and foreign affairs and environment were unchanged in the first cabinet reshuffle of Singh’s scandal-plagued second term. Singh said a wider reshuffle would take place after the February budget.

The minor changes may fuel a perception that Singh is lost for ideas after failing to push big-ticket economic reforms that include freeing up diesel prices and streamlining taxes, or take measures to contain inflation and clamp down on endemic graft.

“I don’t think it sends out any strong economic signal suggesting that there is any great urgency on the part of this government to push through reforms in critical sectors of the economy,” said Rupa Rege Nitsure, chief economist at the Bank of Baroda.

Most reforms in Asia’s third largest economy and one of the world’s fastest growing emerging markets are handled by the finance and commerce ministries, whose heads remain unchanged amid calls for the government to open up foreign investment in sectors such as retail, banking and insurance.

No minister was sacked despite accusations of incompetence and graft overshadowing many of them, drawing criticism that ruling Congress party head Sonia Gandhi, the power behind Singh, was simply out of touch with millions of frustrated Indians, a critical issue as India heads to key state elections this year that threaten to weaken the troubled ruling coalition.

“The big picture from this is that there is only a bit of shuffling around here and there but no major expectations have been met — no young blood injected, no corruption-tainted names dropped,” said D.H. Pai Panandiker, head of private think-tank RPG Foundation.

Stock markets were closed when the reshuffle was announced while bonds and the rupee currency were unmoved.

India’s government is bogged down trying to defend itself in a slew of corruption scandals that strained the ruling Congress Party’s ties with its increasingly worried allies in the run-up to the elections. The highest food inflation in a year has only made matters worse.

At the centre of the graft charges is a potential 24 billion pound fraud in awarding of telecoms licences in 2008. The opposition has forced the December parliament session to shut demanding a joint probe into the scam.

A poll this month showed voter discontent with the Congress party could result in a loss of 40 seats in a general election which would threaten its majority and damage its ability to form a working coalition government.


Re-elected in 2009, Singh’s government shielded India from the worst of a global downturn, and its economy is heading for growth of nearly 9 percent in the fiscal year ending in March. But reforms seen to allow India to compete with China have been in limbo, while inflation and graft have overshadowed the boom.

Analysts said many poorly performing or graft-tainted ministers were moved to lower profile posts, rather than sacked, which would have boosted the government’s image.

Kamal Nath, the powerful roads minister charged with boosting India’s creaking infrastructure, was moved to another ministry after criticism he was too slow to building new roads crucial for the Asian giant’s sustainable development and ability to compete with China.

In a signal the government wanted to clean up its image, Sports Minister M.S. Gill, criticised for overseeing a Commonwealth Games ridden by corruption scandals that embarrassed India, was moved to another cabinet post.

But business-friendly Oil Minister Murli Deora was replaced by Jaipal Reddy, a political heavyweight of the ruling Congress party. Reddy was partly responsible for running the Commonwealth Games in October and had to fend off scathing criticism of the organisation, the infrastructure and facilities.

Environment Minister Jairam Ramesh, whose push for green laws has put him on a collision path with industry and halted hundreds of projects, was confirmed in his post, a sign that the government will press ahead with strong environmental regulations that have blocked major industrial projects over the last two years.

Ramesh, however, appeared to show some willingness to accommodate economic growth and jobs, saying on Wednesday he was willing to revive a plan by Vedanta Resources <VED.L. To expand an alumina refinery in eastern Orissa state, provided it met certain conditions.

Cabinet vacancies have been created by the resignations of Shashi Tharoor as junior foreign minister and Andimuthu Rajaas telecommunications minister. Raja, from the Congress’ regional DMK ally, quit over his link to a 24 billion pound telecoms scam.

In a sign that the scandals were reaching a tipping point for many influential Indians, a group of 14 public figures, from industrialists to former central bank governors, warned this week in an open letter that corruption and bad governance threatened India’s growth.

“We are alarmed at the widespread governance deficit almost in every sphere of national activity covering government, business and institutions,” said the letter, quoted in the Hindustan Times.

(Additional reporting by Nigam Prusty, Matthias Williams, Henry Foy and Abhijit Neogy)

Writing by Alistair Scrutton; Editing by Paul de Bendern and Miral Fahmy

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