The decision of the DMK, a major ally of the ruling UPA, to pull out of the government and roll back its support for the coalition has given rise to uncertainties over key economic reforms.
The developments could slow down the pace of planned reforms, including the politically contentious moves to further open up insurance and pension sectors to foreign investment.
Besides, the fate of two of India’s biggest tax reform initiatives—the Direct Taxes Code (DTC) and the Goods and Services Tax (GST)—hang in balance as both will require Parliamentary approval.
Finance minister P Chida-mbaram had said he plans to introduce the DTC Bill, which seeks to overhaul income tax laws, in the ongoing budget session.
The government had planned a heavy legislative agenda for passing as many as 35 bills during the current budget session apart from the Finance Bill, the Railway Budget and the anti-rape law which was passed by Lok Sabha on Tuesday.
The Food Security Bill, which once voted into law will entitle government-subsidised rice and wheat to two out of three Indians, was also planned for passage during the current Parliament session.
The government will also have to ensure the necessary support for passing of the Lok Pal Bill and the Land Acquisition Bill in Parliament.
“It (withdrawal of support) makes the political situation less certain, and any instability is bad for the reform process,” said Sonal Varma economist at Japanese investment bank Normura.