India's Parliament Blamed For Slow Economic Growth

India's gridlocked political system is being blamed for a slow down in the country's previously rapid economic growth. The reform process that started the boom has come to a grinding halt in parliament — and many business leaders say the political uncertainty is discouraging further investment.

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India's economy has been a success story with growth second only to China. But that boom may now be slowing. Figures from last year's growth are expected to show a drop from eight to six percent. The government also faces increasing deficits, a plummeting currency and a political deadlock in parliament. Elliot Hannon has our story from New Delhi.

ELLIOTT HANNON, BYLINE: Deepak Pahwa is a pioneer. Thirty years ago, he decided to build a plant to manufacture air filtration equipment and fellow businessmen thought he was crazy. India's market was tiny and largely cut off from the rest of the world. But Pahwa saw potential.

DEEPAK PAHWA: I took that bet and risk. And today, we employ about 1,200 people. We are one of the largest global players in this business.

HANNON: When India gradually began opening up its economy two decades ago, India went from an economic backwater to a rising economic power. Foreign companies clamored for more access to the country, and the government tried to build on the momentum by cutting back on regulations and making it easier for Indian and foreign companies to operate in the country. Today, India's economy is still growing, but the outlook is much different, says Pahwa.

PAHWA: The general mood has turned from optimism to caution, to concern, and that has happened very rapidly. And now, we are looking at serious concern.

ELLIOT HANNON, BYLINE: When massive corruption scandals were uncovered last year, the government's popularity began to drop. Then government tried to allow big foreign supermarket chains like Wal-Mart to open in India. But the opposition erupted...

UNIDENTIFIED WOMAN: Please take your seats. Please take your seats.

HANNON: ...and the government had to backtrack on the plan. The government looked indecisive, and with its credibility diminished, other necessary reforms were put on hold, says Aradhna Aggarwal, an economist at the independent National Council of Applied Economic Research.

DR. ARADHNA AGGARWAL: Today, government offer something, but tomorrow, that benefit or that incentive is withdrawn, so people really don't have trust.

HANNON: That crumbling confidence in government makes it hard not only for big companies to operate but also for small businesses.

At his roadside stand in New Delhi, Vijay Singh rolls small bundles of paan, a local type of chewing tobacco. He opened his kiosk three years ago, after saving up $3,000. So far, his plan has worked, and Singh says he's happy with a two to $300 a month he's getting back from his investment. But if he wants to expand or move to a better location, he says he'll have to pay bribes.

VIJAY SINGH: (Through Translator) That's how things run here. This is Delhi, so even the police, the local government, everyone takes bribes. That's the way to do business here.

HANNON: And the economist, Aradhna Aggarwal, says there has to be less corruption, fewer regulations and more consistency from the government to restore business confidence. But she says the government still has a role to play.

AGGARWAL: The government is to give the direction. It has to see which are the sectors where by investing in which we can maximize the growth rate.

HANNON: On Wednesday, the government announced a cut in fuel subsidies, seen as a signal it might be ready to make unpopular decisions to boost the economy. But in response, opposition leaders called for nationwide strikes. The Indian business community is wondering if this time, the government will keep its nerve. For NPR News, I'm Elliot Hannon in New Delhi.

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