Reforms slowdown can have poll implications for BJP, Cong

  • Sanjoy Narayan, Hindustan Times
  • Updated: Aug 07, 2015 14:22 IST

If there’s one thing that finance minister Arun Jaitley has in common with US rating firm Moody’s, it is that both believe India’s true potential GDP growth rate is close to 10%. Mr Jaitley has reiterated his belief several times that India can achieve such double-digit growth rates. And, a couple of days back, the analytics arm of Moody’s echoed the same view.

That’s the good news but with it comes the bad. Moody’s’ fears that despite the immediate advantages of a good monsoon and lower oil prices, India’s medium to long-term growth could get derailed because of lack of reforms.

That’s an unsubtle reference to pending bills such as the ones pertaining to land acquisition, a uniform tax code, and real estate regulation, all of which are unable to be turned into law because political infighting has made lawmaking in Parliament dysfunctional.

These bills are important for obvious reasons. Consider two — the land bill and the goods and services tax bill. Firms, local and foreign, baulk at how cumbersome and time-consuming it can be to acquire land to build factories and infrastructure projects. India’s ports, airports, roads and power plants are straining under pressure and unless land is converted with fewer impediments to infrastructure significant economic progress may remain elusive. Second, India’s indirect tax environment is complicated, multi-layered and sometimes contradictory, making it difficult for firms to expand or achieve economies of scale. Unless tax barriers between states are removed and the red tape (along with which inevitably comes corruption and confusion) is dismantled, doing business in India for foreign or Indian firms will continue to be difficult.

Of course there are more reforms that rating agencies such as Moody’s would like to see — such as flexible labour laws and a door opened much wider for foreign direct investors. And they frequently cite examples of other economies (the Moody’s report names the Philippines, Malaysia and Poland, among others) that reaped the benefits of reforms in growth. Global investors and rating agencies cheered enthusiastically when Narendra Modi led the BJP to a spectacular victory in the parliamentary polls last year. Fourteen months after his government took charge, their ebullience has been replaced with impatience.

The bills everyone is exercised about are stuck for reasons known to everybody. Although the BJP and its allies can swing things in the Lok Sabha on the strength of their numbers, in the Rajya Sabha, where they are a minority, the Congress-led Opposition is unwilling to allow bills to pass. So laws aimed at hastening reforms remain unmade. In private, Congressmen will blithely tell you that it’s about nothing else but politics. After all, the proposal for a uniform countrywide tax code was first introduced by a Congress-led government in 2011; and making the existing land-buying laws more amenable to for development is something that the Congress also wants, in principle.

The reforms slowdown will hit Mr Modi’s growth and development agenda, which was what his campaign during last year’s polls was all about, but it can rebound on the Congress as well. As leader of the Opposition’s steadfast resolve to ensure that Parliament sessions remain fruitless (the monsoon session is all but washed out), the Congress is fast earning the epithet of being a political party that is against economic development.

For the BJP as well as the Congress, this could have electoral implications. A series of states will go to polls soon: beginning with Bihar later this year but also Tamil Nadu, Kerala, West Bengal, Assam and Puducherry. In all of these, the two central parties and their allies will be pitted against each other as well as, in many states, powerful regional parties. Unless things change by then, the impasse it faces in Parliament can cast a long shadow over what they could promise the voters in these states. The BJP may likely stick to its promise of economic development but, unless things change dramatically, that will now come with a hollow ring. What the Congress will promise in its campaigns is much less predictable (it can’t credibly be economic development!) but the fact that both parties have brought law making to a standstill is unlikely to find them favour among those who will decide who will rule them.

Sanjoy Narayan is editor-in-chief of Hindustan Times.

Lack of reforms may derail India's growth: Moody's report

Fate of GST bill hangs in balance as Oppn hardens stand

also read

Concerns over Amma’s health: We’ve the right to know how our rulers are keeping
Show comments