If FDI increases due to reforms introduced by the government, it will be easier to conduct business across sectors
For the NDA government, the past seven months have been as stormy in Parliament as they have been sunny and bright in the electoral arena. While the ruling alliance has gone from strength to strength in state elections, its attempts at passing reform-oriented Bills in Parliament have been stymied by a dogged Opposition, particularly in the Rajya Sabha (RS), where the NDA is still in a minority. Yet it is in the electoral victories that the NDA is likely to find a solution to this stalemate. We examine how a possible NDA majority in the Rajya Sabha by 2016 will impact on new Bills and, by extension, India Inc.
Upper House, lower expectations. The NDA has 59 seats out of 243 occupied ones in the RS, of which the BJP has 43, much short of the majority. In a political climate where regional parties like the SP and BSP are voting on the side of the UPA, the ruling alliance does not have the numbers it needs to pass Bills in the Upper House. However, the BJP is on a roll across the country, and won impressive victories in Jharkhand, Haryana and Maharashtra. Delhi is going to the polls shortly. All this will translate to more BJP legislators, who in turn will elect more party candidates to the RS. In Haryana two non-BJP seats which had fallen vacant out of turn have been filled by BJP candidates in December itself.
After Delhi, Bihar, which sends 16 members to the RS, will have Assembly elections in November 2015. By the end of June, 2016, West Bengal, Assam, Kerala and Tamil Nadu, which send a total of 50 members to the RS, will also have elections. Going by the current political climate, the composition of the RS will be significantly altered to the advantage of the BJP by the middle of 2016.
Ever since it came to power, the BJP and its alliance partners have had considerable difficulty passing Bills in Parliament. Both the Monsoon and Winter Sessions saw successive Bills stopped by the RS. Four Bills of importance to industry were passed by the Lok Sabha but rejected by the RS in the Winter Session alone. These include the Coal Mines (Special Provisions) Bill, which itself replaced a September ordinance which was rejected by the Supreme Court; Companies (Amendment) Bill which was intended to make doing business more convenient; Regional Rural Banks (Amendment) Bill which would have increased authorized capital for RRBs and let them tap into funds in the capital market and the Payment and Settlement Systems (Amendment) Bill, which would have designated the Reserve Bank as supervisory authority for payment systems. The ruling alliance had an even harder time with the Land Acquisition (Amendment) Bill, which sought to amend the UPA’s prized Land Acquisition Act, 2013. The amendments would mean relaxation of land acquisition norms for five sectors, including housing.
The way ahead. The NDA chose to pass some of the Bills by ordinance in the face of this standoff. These include the Land Acquisition (Amendment) Bill and the Coal Mines (Special Provisions) Bill. The latter was introduced on October 20, 2014, and was re-promulgated at the end of the year, thus allowing the Coal Ministry to give 101 mines through auction in the first phase. Meanwhile, the Insurance Laws (Amendment) Bill, which was pending since 2008, was also passed through ordinance. It not only sees FDI in the sector hiked to 49 per cent from its current 26 per cent, but also benefits customers, including by curbing mis-selling of policies.
The ordinance route might have been inevitable for the government, but it is not the end of the road for these Bills. They will need to be passed at the next session of Parliament, albeit in a joint sitting of both Houses. In which case the NDA has the advantage of its majority in the LS.
However, the ordinance route cannot be the universal option for every major reform the ruling alliance has in mind. For this, it needs a clear majority in the RS, which is likely to happen by the middle of 2016. If it comes about, the Modi government will finally have a free hand to introduce the reforms it has in mind. Beside reforms on FDI limits across sectors, which the NDA had promised in its manifesto, there are also other reforms expected from Finance Minister Arun Jaitley. It is likely that the contours of these will be seen in the Budget Session in 2015. However, major Bills will still be hotly contested in Parliament until such time as the BJP is in a strong position in the Upper House.
According to Sunil Bhandare, advisor for government and economic policies at the Tata Strategic Management Group, the reform process will enter a decisive phase only in 2016-17. “By that time the BJP is expected to improve its position in the Rajya Sabha significantly, and this will facilitate the reforms being pushed forward,” he says.
Bhandare also believes that by then, with a consistent 6-6.5per cent growth rate and a better fiscal situation, India will be back on track for growth rates of above 8 per cent. If FDI increases due to reforms introduced by the government, it will be easier to conduct business across sectors. According to Rajesh Chakrabarti, executive director of the Bharti Institute of Public Policy at the Indian School of Business, Mohali, these reforms will also re-energise corporate performance. Meanwhile, the manufacturing and mining sectors will receive boosts if reforms on the line of the Coal Bill are passed without delay. These will set the pace for a comprehensive overhaul of the business environment through introduction of other reform-oriented Bills. If, in this climate, Bills like RRB (Amendment) and Payment and Settlement (Amendment) are also passed, the scenario for industry will improve in the near future.