India unlikely to see major reforms before election

By Simon Denyer and Surojit Gupta - Analysis

NEW DELHI (Reuters) - India's government has regained political momentum after surviving a confidence vote in parliament, but optimistic talk about restarting stalled economic reforms could be overblown, analysts said.

India's stock market rose more than 5 percent to one-month highs on Wednesday after the government said it wanted to push ahead with its reform agenda, but with elections less than a year away, its room for maneuver appears limited.

"Talk of reforms is all hyped up," said A. Prasanna, economist at ICICI Securities Ltd in Mumbai.

"It will take lot of effort and floor management to pass the pension, insurance and banking bills. I don't see any immediate electoral benefits from these bills. So I don't think the government will make the effort."

The government of Prime Minister Manmohan Singh won the confidence motion by 19 votes, a much more handsome margin than anyone expected, after its former communist allies withdrew support over a nuclear cooperation deal with the United States.

Newspapers heralded a "triumph" for Singh, and analysts said it gave the government a tail wind that could see it survive until elections due by next May.

The government will now push ahead with the civilian nuclear cooperation deal, which could unlock tens of billions of dollars in investment over the next 15 years.

And after four years of frustration, when efforts to liberalize the economy were blocked by the communists, Singh and fellow reformist Finance Minister Palaniappan Chidambaram would surely love to go out with a bang.

"We have a majority," Chidambaram told reporters after the vote. "Therefore we have to work with other parties to carry forward the reform process."

But with inflation nearing 12 percent, and after a string of defeats in state-level elections over the past year, the coalition's appetite for controversial reforms could be limited.

Saumitra Chaudhuri, a member of Singh's Economic Advisory Council, is not expecting too much.

"In the next eight to nine months, the United Progressive Alliance government is likely to selectively push legislative issues that are not contentious," he said.

"The pension bill will most probably come up, but we will have to see where else progress happens," he said.

Pension reforms would allow private fund managers to compete for state pension funds and for foreign companies to invest in the sector.

Insurance reforms would allow more foreign direct investment in the sector, and are also possible.