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India’s Reforms: It Ain’t Over ’til the Tough Lady Sings

Foreign institutional investors have been stampeding into Indian equity markets over the past week. On September 14 alone, $522.1 million in Indian shares was purchased with foreign funds, the highest level since July. Late last week, India announced plans to open certain industries to foreign investment including the on-again off-again and now on (but maybe off) again promise to allow foreign retailers like Walmart into the country.

As Bloomberg reports, India’s economy is already benefiting from the mere promise of reform:

Offshore funds have plowed a net $13.3 billion into Indian shares this year, the most among 10 Asian markets outside China tracked by Bloomberg, on speculation the government will revive plans to boost an economy growing at the slowest pace in three years. The BSE India Sensitive Index (SENSEX) has climbed 20 percent in the period, the second-best performance among benchmark gauges in countries with at least $1 trillion in market value.

But West Bengal Chief Minister Mamata Banerjee (who some have called India’s Sarah Palin) is now threatening to pull her party’s ministers out of the prime minister’s coalition in protest:

Mamata Banerjee … head of the Trinamool Congress, said Tuesday the party had decided to leave the government over its opposition to the overhauls.

The administration of Prime Minister Manmohan Singh relies on Trinamool for its majority in Parliament.

“Our ministers will go to New Delhi on Friday and submit their resignations … We are sorry, but we had to take this hard decision.”

India continues to struggle with balancing the political and economic priorities of the center versus those of the states; the states often have very different ideas about what is good for the country and good for the locals. Foreign investors beware: more than a few powerful people in India hate the multi-brand retail idea.

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