Column: Politics is back in reforms

Written by N Chandra Mohan | Updated: Aug 18 2014, 07:14am hrs
Barely over two months in office, the reform agenda of the BJP-led NDA government has been held hostage to political opposition. The delay over introducing the insurance amendment Bill in the Rajya Sabha is a case in point. This opposition is not just from the usual suspects like the Left that are hostile to so-called neo-liberal reform; it emanates from the Congress Party, too, even though the latter had wanted to introduce a similar bill when it was in power for two terms, between 2004 and 2014. For such reasons, the NDAdespite a commanding majorityfaces the prospects of delays in its reform drive.

With politics back in command, the slower pace of reform likely under the Modi government ought to dispel a popular misperception that regimes that have an absolute majority can push through policy change faster than, say, minority or coalition governments. The truth is that reforms in India during the last two decades have been somewhat slow regardless of regime, except in moments of crisis when there is momentary autonomy from political constraints as in the early 1990s. The reality is of fierce pressures from within and outside the government to go slow on change.

Why do reforms appear slow Former Prime Minister Manmohan Singhs take on this early on during UPA-I was that we have to assuage doubts and calm fears that often arise when people face the impact of change. Many of the fears we have to address are exaggerated, but they must be addressed. This is necessary to ensure sustainability. This delicate phraseology masked the fierce opposition from the Left parties that derailed whatever the UPA government wanted to do in its first term in power from 2004-2009. UPA- II, sans Left support, was too paralysed to do anything significant.

Singh is widely regarded as the architect of Indias reforms during the early 1990s when he was the finance minister in the Narasimha Rao-led government. They lasted only as long as crisis conditions prevailed in Indias balance of payments. When that blew over, Prime Minister Rao pulled the plug on reform in favour of his middle path strategy of populism after the Congress faced electoral setbacks in the state elections in Andhra Pradesh and Karnataka in 1994. Earlier, a similar fate clouded Rajiv Gandhis half-hearted efforts at liberalisation after the Haryana state elections in 1987.

Perhaps the closest the previous NDA government enjoyed momentary autonomy to push through reforms was after the Pokhran nuclear blasts and the imposition of US sanctions in 1998. But the NDA governments reform efforts, too, were incremental and hedged by political opposition. Important second-generation reforms like opening up the insurance sector faced intense opposition from within the ruling party than on the streets. The current NDA governments efforts on insurance sector reform and other initiatives like judicial and labour reform similarly faces opposition across the political spectrum.

Reforms in India thus are politically problematical. Barring episodes of crisis, pushing through reforms in a democracy requires building a consensus in favour of change. That as the Modi government is discovering is not easy. Grandstanding in splendid isolation at the WTO has no parallels with the previous NDA regimes nuclear test. The brief momentary autonomy to launch a reform blitz does not exist for the Modi government as it did for the Vajypayeeled government. There is no alternative it has but to subject its initiatives to parliamentary scrutiny and debate and a process of give and take.

Unfortunately, it has not made any serious effort either to negotiate with political parties that have ganged up against passing the insurance Bill. It is true that the Congress opposition is purely opportunistic and tit-for-tat in nature. The way forward is not to assert that there are only three options before the oppositionnotably, to pass the Bill or reject it or suggest amendments. The Modi government was obviously banking on the fact that if the opposition turns down the bill in the Rajya Sabha, the decks are cleared for a joint sitting of Parliament in which its commanding majority can ensure its passage.

However, this prospect of a joint session appears elusive as virtually the entire political opposition in the upper house has instead decided on a fourth optionnotably, for the Bill to be vetted by a select parliamentary committee. All of this is a recipe for considerable delay in introducing a crucial reform that was announced first in the maiden budget of the NDA government on July 10. With PM Modi scheduled to visit the US in September, this means that he will go without this key measure of reform being passed. This is the prospect for its bills on higher FDI in defence and railways as well.

The Modi government thus faces a stalemate over the passage of important reform initiatives. The option to divide the ranks of the opposition and persuade some of them to support the insurance bill has run its course. Indications are that it might seek a middle path to refer the insurance bill to a select parliamentary committee on the condition that its scrutiny takes place in a time-bound manner. As argued in this newspaper, the governments best bet is perhaps to introduce all bills in the Lok Sabha and allow them to work their way through the system. Delays have to be factored in order to make them more durable and irreversible.

The author is an economics and business commentator based in New Delhi