Professional Documents
Culture Documents
2016
An Agenda For Revival
What
Narendra Modi
in
2016
economic reforms
- by Vivek Kaul
| 2
Preface
Love him or hate him...But you just cant ignore him.
That seems to be the case with Indias current Prime
Minister Narendra Damodardas Modi.
After leading NDA towards a landslide victory in the
2014 general elections, Modi now seems to have found
his own challenges to deal with...
Whether it is the Mahagathbandhan in Bihar, Arvind Kejriwal in Delhi or
the Gandhis holding the Parliament at ransom!
So, as Modi continues to tread on his tough political path...I share my
views on some of the most common issues which could be on Modis mind
in 2016...
Happy Reading!
Vivek Kaul
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TABLE OF CONTENTS
Page
The History
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__________________________________________________________________
__________________________________________________________________
7
__________________________________________________________________
9
Of mother and son
__________________________________________________________________
11
Us and them
__________________________________________________________________
12
Cooperative Federalism
__________________________________________________________________
15
Disclaimer
Vivek Kaul's
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| 4
- By Vivek Kaul
Its that time of the year when the media is getting into an advisory mode, trying
to tell anyone who is willing to listen about what to do during 2016.
I thought let me join the show as well. If you cant beat them its best to join them,
as they say... So here are my two paisa on what I think Narendra Modi should be
doing on the economic reform front in 2016. Not that he is listening to me, but I
might write it out as well...He just might...Who knows...
And why 2016? Well, as I said, it is that time of the year.
Narendra Modi was sworn in as the prime minister of India on May 26, 2014. It
was widely expected that Modi and his finance minister Arun Jaitley would unleash
the second generation of economic reforms that the country badly needs.
But as I saw, and you saw, dear reader, Modi has not been able to come up with
any major economic reforms. Will 2016 be his chance to make amends?
The History
Over the last 25 years, starting in 1991, economic reform in India has largely
concerned itself with the product markets, from cars to mobile phones to a lot of
other products that you buy and use dear reader.
Many of these things were not there in 1991. Human desire was limited to buying
a Bajaj scooter or at best an Ambassador car (Maybe a Premier Padmini (more
commonly referred to as the Fiat car) if you lived in Western India).
These days buying something as simple as a mobile phone can be a topic for a
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PhD thesis with so many permutations and combinations having to be taken into
account. Okay, I am going a bit overboard here...But hope you get the drift dear
reader...
And getting back to the topic at hand...
What has largely been left unreformed in India are the factor markets (land,
labour, capital and technology). As veteran editor and journalist TN Ninan writes
in his new book The Turn of the TortoiseThe Challenge and Promise of Indias
Future: The reforms that were introduced in 1991 focussed primarily on product
markets. They opened up the country to international competition through the
abolition of import controls and lowering of tariffs. Capacity restrictions on domestic
producers were removed; more players were allowed to enter and compete in product
and service markets. Some, like airlines and telephone services, were no longer reserved
for government companies.
While there has been a good amount of product market reforms, over the last 25
years factor market reforms have not come through. And it has clearly not been
because the governments havent tried. Oh yes, tried they clearly have!
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loss in Bihar clearly tells us is that Modis personal charisma basically turns out to
be useless if the opposition parties decide to get together and take on the BJP.
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them that the Modi juggernaut is stoppable. This hope has been clearly visible in
the winter session of Parliament. The Congress led opposition allowed very little
work in the Rajya Sabha and as a result the Goods and Service Tax (GST) Bill was
put on the backburner.
This was primarily on account of Rahul Gandhi and his mother Sonia, vicepresident and president of the Congress Party, being asked by the Delhi High Court
to appear in person before the trial court in the National Herald case. I will not get
into the details of the case here given that it will take me away from other more
important points that I am trying to make. I guess enough has been written on it
already and for a change the media has done a good job of explaining things.
The Gandhis have always liked some amount of mystery to surround them and
appearing in a court would have taken some of that sheen off (at least in their minds).
Hence, the Congress party was put to use to disrupt the Parliament and allege that
the government was indulging in vendetta against them. They ultimately got a
bail in this case by appearing in a court.
The Congress Party has only 45 seats in the Lok Sabha but manages to retain a
huge nuisance value given that it has 67 seats in the Rajya Sabha. And this is not
going to change any time soon. At least, not up until 2019, when the term of the
Modi government ends.
The surprising thing is that the Congress is no longer a pan India party that it used
to be. The ability of the Gandhis to push the party towards a victory on their own
has gone down considerably over the years. Nevertheless, the party still operates
around them for the simple reason that the Congress does not stand for anything
other than the Gandhis.
In fact, it also needs to be mentioned here that when the BJP was in the opposition
between 2004 and 2014, its behaviour as an opposition party was nothing home to
write about, especially during the second term of the Manmohan Singh government
between 2009 and 2014, when the party repeatedly disrupted the Parliament. It is
now getting a taste of its own medicine and the nation is losing out in the process.
As the old Hindi saying goes: Jaisi Karni Waisi Bharni (as you sow, so you shall
reap).
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Us and them
There is now talk about the government introducing the GST Bill during the
budget session in February, next year. But the numbers in the Rajya Sabha are still
against them. If you look at the following table, it shows the top ten political parties
in the Rajya Sabha. Other than the Telgu Desam Party none of the other eight
parties are currently a part of the NDA. The Biju Janata Dal even though not on
good terms with the BJP has said that it will support the GST Bill.
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10
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In the winter session of the Parliament the government made some effort to reach
out to the opposition but without much success. Given this, I have my doubts on
whether the government will be able to push through GST even during the course
of the next year as well.
Also, if the government is unable to get GST passed next year, it is highly unlikely
that the Bill will be introduced in 2017, given that the initial impact of the tax
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Cooperative Federalism
While, the government has made some efforts to get the GST Bill passed, the
Land Bill has been completed put on the backburner. The country is currently
governed by the land acquisition Act which was passed in 2013. Land acquisition
under this Act is extremely complicated and has completely come to a standstill.
This is a reason for worry.
In fact, in the recently announced bullet train project (referred to as high-speed
rail by the government), land acquisition is expected to be a major problem.
As analyst Akhilesh Tilotia of Kotak Institutional Equities, who is also the
author of The Making of India, writes in a recent research note titled High-speed
rail or airports?: Building a railway line requires sizeable land (already a contentious
issue in India) for two key reasons(1) every line that is laid down requires significant
width (typically, around half a km) and (2) connecting multiple cities requires creating
connections between all of them. We calculate that to develop the Golden Quadrilateral
connecting the four important cities, India will need to build six railway lines totaling
about 10,000 kms, which will, we estimate, will require around 1,000 sq kms of land area.
Lands through which railways are expected to pass inherently become more valuable
and hence more expensive to acquire. It remains to be seen how the government
goes about acquiring land for this ambitious project.
| 12
Long story shortany bill with a hint of economic reform built into it and which
needs to be passed by the Rajya Sabha is unlikely to go through. So what can the
Modi government do in this scenario? It clearly cannot wait to get a majority in
the Rajya Sabha. As I have explained above there is no chance of the BJP led NDA
getting majority in the Rajya Sabha up until 2019. But there might be a solution to
this problem.
In a letter written to chief ministers earlier this year Narendra Modi had said:
I have been working to strengthen our federal polity and promote cooperative
federalism...Even as Chief Minister, I had been saying that the progress of the country
depends on the progress of states. This Government is, therefore, committed to the
idea of empowering states in all possible ways. We also believe that states should be
allowed to chalk out their programmes and schemes with greater financial strength
and autonomy, while observing financial prudence and discipline.
It is time for Modi to start actively promoting the cooperative federalism that he
keeps talking about. The BJP and its allies are in government in many states across
the country. While GST can only be implemented at the central level, the land law,
the labour laws as well as the real estate law can all be implemented at the state
level.
In fact, states like Gujarat, Rajasthan and Madhya Pradesh have already moved
towards simplifying their labour laws. Other than labour laws at central level, states
in India have their own labour laws. There is no proper estimate of how many
labour laws India has in total. The state governments where BJP is in power could
move towards simplifying the total number of labour laws in India.
A similar thing could be carried out when it comes to the Real Estate Bill as well.
In May 2015, the Bill was referred to a Select Committee of the Rajya Sabha. The
committee submitted a report. One of the members of the committee, AW Rabi
Bernard of the AIADMK, dissented to the report submitted by the Select Committee
of the Rajya Sabha. Bernard in his dissent note said that the central government
should have sent the Real Estate Bill as a model bill to the states which could have
then enacted their own bills to regulate the real estate sector. Further, the way the
Bill is currently structured, it calls for the setting up real estate regulators in every
state and union territory. The success of the Bill rests on how seriously any state
13 |
government chooses to implement it. Given that, why not allow state governments
to pass their own real estate bills as well, as long as they do not vary too much
from the model bill of the central government? If cooperative federalism is the way
forward, then this clearly is not a bad idea.
This leaves us with the issue of land acquisition. In this case, states where BJP
is in power can take inspiration from Tamil Nadu. As Ritika Mankar Mukherjee
and Sumit Shekhar of Ambit Capital write in a research report titled Failure to
amend land law to exacerbate sense of policy drift: Tamil Nadu was the first and only
state to seek and receive Presidential assent to exempt three major categories from the
purview of the Land Acquisition, Rehabilitation and Resettlement Act. In particular,
land acquisition done under the Tamil Nadu Highways Act, 2001; the Tamil Nadu
Acquisition of Land for Industrial Purposes Act, 1997 and the Tamil Nadu Acquisition
of Land for Harijan Welfare Schemes Act, 1978 is outside the purview of the consent
clause and Social Impact Assessment clause.
Around four-fifths of the land acquired in Tamil Nadu is acquired under the three
acts mentioned above. Hence, given that the Tamil Nadu government has totally
managed to work around the binding provisions of the 2013 Act.
This is something that the other states can learn from. Once these laws are in
place at the state level, it is likely that new businesses will be set up in these states
than in other states. Once non-BJP run states start see this happening they will
also have to follow suit. This is something that Modi will have to push for in 2016,
given that his chances of pushing through any major economic reform at the central
government level, remain very low. It is time for him to start practicing what he has
been preaching.
To conclude, as the ultimate clich goes dear readers, I remain cautiously
optimistic when it comes to the ability of the Modi government to push through
economic reforms. How about you?
| 14
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Vivek Kaul's
Advertisement
Easy Money
Get This Trilogy Worth Rs 1,215 For FREE!
Vivek Kaul, Editor of the Daily Reckoning,,
y,
is a master storyteller. And in this trilogy,
he tells us probably one of the most
..
important stories that has yet been told...
the story of Money.
s
A highly recommended read that teaches
e
you lessons that could help you avoid the
next global meltdown. Don't Miss It!
Claim your Free set worth Rs 1,215
now...
Hurry! We only have limited copies of Vivek Kauls 'Easy Money' Trilogy
books to give away.