Assembly elections triumphs reassuring for BJP, but will test Narendra Modi government when it pursues reforms

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Published: March 20, 2017 4:54:48 AM

The outcome of the state elections for the BJP though very reassuring, would also test the government when it comes to pursuing reforms

It is hard to say whether or not the results were a vindication of demonetisation as the results prima facie show that two out of the five states gave an absolute majority to the BJP while three didn’t. (ANI)

The victory of the BJP in the state elections has been viewed from two points of view, both of which are important. The first is that it is a vindication of the demonetisation scheme; and as a corollary the government now derives a lot of strength for pushing reforms. These assertions need some discussion.

It is hard to say whether or not the results were a vindication of demonetisation as the results prima facie show that two out of the five states gave an absolute majority to the BJP while three didn’t. It may be asserted that demonetisation affected two sets of people—the rich and not so rich. The rich, which is certainly in the minority have either escaped from the net; or are at the periphery been caught, but do not matter when the electoral numbers are looked at. The lower income groups which are more diligent when it comes to voting have never really cribbed when the scheme was on and were philosophic about standing in queues (they are so used to standing in long queues for kerosene, rations, water, etc, that it does not matter). Besides the thought that it was the rich that was going to be affected created an air of schadenfreude which was satisfying.

More relevant is that the government can now take on a more aggressive stance on black money and probably go after benami property which is on the agenda. This may not be good news for the real estate sector which has particularly been impacted by demonetisation. The idea of demonetisation did not require any Parliament assent, but was projected to be immensely unpopular with the people. However, the government may decide to go slow considering that the two schemes attacking black money in Swiss accounts and in currency have met with limited success (the latter should be known only after the results are put up by the government).

The issue on reforms is quite deep rooted and hence thought provoking. Typically, there are four reforms which are pending for action that could require assent from the Rajya Sabha too. Here again, it must be noted that given that the members are nominated to this House once the present subset retires after six years, there would be a time lag before which the election successes translate to higher physical numbers. It would probably be in 2018 that this majority will accrue on the floor.

The four reforms that are to be completed relate to land, labour, PSBs and FDI in retail. The government is definitely better placed when addressing these polices. However, these issues are quite ticklish as there are no easy solutions given their complexity. The present growth that has taken place in the economy has not been associated with large volumes of employment being generated, which probably explains why there has been a sharp increase in value added in manufacturing but not in industrial production. The latter is related to employment generation while the former is not.

Therefore, the government will have to bear judgment whether or not this is the right time to go in for such reforms especially so as the developments in the US could push back employment opportunities at the upper end of the skill curve too. Further, it should be pointed out that governments are normally wary on labour reforms as when jobs can be lost, it can affect the electorate in a more decisive way as it affects the people at the lower level. Hence, any move to get in more flexible labour laws would be an extremely bold move.

The second issue which is tricky and has been deferred relates to land. Bringing about easier sale of land is another bold reform that the government can take. Here Parliament can pass the Bill in both the houses, and the states where the BJP rules could implement the same by passing a vote in the assemblies as land is a state subject. Here again keeping in mind the general elections of 2019, there has to be thought given on whether it would be wise to have the same passed at this juncture. Land reforms have become controversial as they involve issues such as sale of farm land to industry, the level of compensation to the selling owners, rehabilitation of displaced people who do not own but work on the land being sold, the minimum consent required to have a deal made and the concept of social audit. What can be expected is that the government in a couple of states could experiment with this reform as a pilot case to test for the feasibility of the same.

Third, sale of PSBs could be an easier one to tackle as it involves only the employees of banks and the Unions which can be a major disruption though not too voter-sensitive given the numbers involved. The present overwhelming support received from the electorates with the BJP forming governments in four of the five states would be an opportune time to go ahead with this move that has been on the cards for long. This is a low-hanging fruit that can be plucked given that there is pressure on the government to resolve the issue of NPAs and capitalisation.

The last reform which would again be at the door of the Parliament would be getting in FDI in retail. This would be a bold step given the number of people involved who are likely to be against such a move notwithstanding the fact that domestic organised retail has met with limited success. Thus, while such a move would send strong positive signals to foreign investors that the government is keen on pursuing progressive reforms, it may not go down well with the affected people.

Hence, the outcome of the state elections for the BJP though very reassuring from the perspective of getting to hold multiple reins of the chariot, would also test the government when it comes to pursuing reforms. This is so as the last mile of the ascent is always the longest and most arduous where hard decisions have to be taken. Given the character shown so far, one can be hopeful that accomplishing these tasks would be taken on with earnestness. But as every bold decision can have ramifications in terms of voting patterns, especially as it affects jobs and livelihoods, it will be hard to complete the symphony.

The author is chief economist, CARE Ratings. Views are personal

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