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Having freed itself in elections last May from the shackles of its left allies, which long resisted the ruling United Progressive Alliance’s policies, the Congress Party-led government has finally decided to push ahead with thorny reforms that have been pending for years.

Addressing industry leaders at the India Economic Summit 2009 of the World Economic Forum in New Delhi on Nov. 9, Singh said that although the global financial crisis had left the country largely unscathed, India still needed to strengthen its financial system to be able to “provide for development.”

India needs “foreign investors’ participation,” and that means the country has to open up a broad agenda for reform. The government, he said, is already striving to achieve higher economic growth as well as “gradual but steady progress in financial sector reforms.”

Singh said he was looking at developing long-term debt markets, deepening corporate bond markets, and strengthening the insurance and pension sectors. Besides, his government was also looking at accelerating the sale of stakes in state-run companies. In other words, he promised to address the thorniest of all reforms – the divestment of government-held companies.

“In general, foreign investors want growth and we are glad that the prime minister has decided to address that,” said Indraneel Sengupta, an economist at Merrill Lynch, one of the largest foreign investors in India.

“As foreign investors we are also glad that the government is going ahead with divestment and is moving forward with initiating reforms in the insurance and pension sectors.”

For India these may be more than just reassuring words. The confidence that Singh exuded in making his announcement is perhaps a reflection of India’s more stable central government, after more than a decade of rule by a shaky coalition.

Although such reforms have been proposed ever since India opened up in the early 1990s, implementing them has been a tough task.

Take divestments for example. While the previous Bharatiya Janata Party-led National Democratic Alliance gave privatization of government-held companies its first big push about a decade ago through strategic sales, political backlash and corruption allegations mired that effort. Arun Shourie, the divestment minister of that government, ultimately had to pull back. Soon after, the NDA lost the elections and had to give way to the UPA government.

A few years after assuming office, the UPA too made a few feeble attempts to bring divestments and some of the just-announced financial sector reforms back on track. But its erstwhile left allies, who opposed any form of reform as “the Congress government’s inefficiency,” thwarted them again.

In the May elections, however, the left failed to gain enough votes to stay within the government. That helped the Congress Party win a large chunk of the recent by-elections, which has now given Singh enough political hold to consider reforms again with renewed gusto, say experts.

“India's measures to deal with the crisis have been timely and adequate,” said Arpitha Bykere, senior analyst at RGE Monitor, a Washington-based global analysis firm. “(Although) fiscal stimulus has eased the slowdown in domestic demand while monetary measures have contained the impact of the global financial crisis, the main challenges actually lie ahead, in reforms,” she said.

Although foreign players are eager to invest in India, they have faced obstacles. “Foreign investors have remained wary since foreign investments faced numerous hurdles in the form of policy delays and political opposition,” Bykere said.

Still, so far this year foreign investors have already pumped in US$15 billion, which is just a little below the US$17.7 billion they brought in 2007, the year before the global financial meltdown began.

According to Sengupta, the global financial crisis may even be fortuitous for India. “India may have managed the financial crisis well and have consequently managed to attract an impressive amount of foreign investments this year,” he said. “But that was largely because, with most economies still struggling, foreign investors have had hardly any other choice.”

Besides, the U.S. Federal Reserve System’s continuing monetary policy has ensured the availability of cheap dollars, allowing investors to borrow cheap and invest in emerging markets, say experts.

“India will face tough competition though when other economies start picking up,” added Sengupta. “This is why, we feel, giving reforms an early push bodes well for India to remain competitive when other investment destinations start appearing attractive.”

Still, Bykere is cautious. The Indian economy depends largely on domestic demand and rising incomes, she says. In the near term, with the absence of benign global conditions, it is mostly domestic factors that will help India attain higher growth.

“Foreign investors will therefore watch out for the pace of reforms, implementation of foreign direct investment and financial sector liberalization, and reducing the fiscal deficit,” said Bykere.

Nevertheless, patience appears to be the name of the game. “Foreign investors accept that each country needs to pace its reforms suiting its environment,” said Sengupta. “And in a democracy like India, we know that there is a democracy tax we need to pay.”

He added, “Everything boils down to growth and continuity. As long as efforts of the government are directed towards addressing growth and maintaining continuity, foreign investors are happy.”