Emerging Markets : Communist Parties Give Economic Reforms A Boost

 

 

India’s ruling coalition, the United Progressive Alliance (UPA) led by Manmohan Singh, survived a vote of no confidence in late July after the three communist parties in parliament said their 61 members would no longer support the government. The communists withdrew their support after Singh’s Congress Party said that it would continue to pursue a nuclear energy co-operation deal with the United States and that it would submit a proposal for the inspection of its civilian facilities by the International Atomic Energy Agency (IAEA). In addition to the nuclear deal, which India says is central to its energy policy, the communist parties had opposed all reform measures, including the setting up of Special Economic Zones (SEZ) that would be exempt from taxes and complying with labor laws. Without the communists’ constant opposition, economic reforms are expected to gather pace in the coming months.

Even with a slowdown in reforms, Indian equipment and capital goods manufacturers reported a 93% increase in orders to $9.18 billion during the April-to-June 2008 quarter. The Federal government, state governments and public sector companies accounted for 55% of these orders. The private sector contributed 31% while overseas corporations placed the remaining 14% of orders. Engineering, construction and infrastructure companies accounted for 57% of these orders.

In a trend that could eventually affect how Indian IT services companies do business, the 2008 Black Book “State of the Outsourcing Industry” survey shows a growing demand for global outsourcing firms to locate their front-office operations onshore in the US or Europe with low-level back-office functions outsourced to less expensive locations such as India. The closely watched survey ranks the top outsourcing vendors globally. Five Indian firms—Wipro, Satyam, Genpact, Cognizant and Tata Consultancy—ranked in the top 20. Twelve of the top 20 outsourcing companies were US corporations, reflecting a major shift from 2004, when just two US companies made it to the top 20. The 2008 survey reflected the views of 24,000 IT services buyers globally. Infosys Technologies, the third-largest Indian IT services company, which was ranked number 10 last year, and ICICI Firstsource, another large Indian company, both dropped out of the top 50 as they were perceived as having a major imbalance between offshore development and local front-office presence in North America.