The Narendra Modi government has been quite successful in using its majority in Parliament to push its socio-religious agenda but has failed to convincingly use this advantage to implement economic reform effectively.
Further, while supporters of the government will praise the Prime Minister for his decisiveness, a quality detractors will call arbitrariness, the fact is that this quality greatly increases policy unpredictability. And that’s not good for business confidence.
But what’s at stake here is something larger. When the BJP won the 2014 election, corporate India, small businesspersons, and traders around the country reacted positively, and with great enthusiasm. That pro-business, pro-economic reform image is now being dented, even though this government is better positioned to make positive change than most before it.
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Squandering parliamentary majority
Let’s start with the parliamentary actions. In its very first year in power, to which it came with a historic majority, the Modi government passed an ordinance to amend the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement (RFCTLARR) Act 2013. This Act had been brought in by the UPA to replace the Land Acquisition Act 1894.
The government tried various times to get its amendments through. First as an ordinance, then as a bill, and again as an ordinance once the bill failed to be passed in Parliament. With a simple majority, the government should have been secure enough to have held a debate on the issue. Instead, it allowed Opposition protests to scupper the matter.
More recently, this is what happened with the farm laws as well. Instead of encouraging debate in the Lok Sabha, an arena it was in control of, the Modi government allowed the agitation to spill over into the streets and the media.
In both cases, with the land and farm laws, the government had to withdraw its legislation.
While supporters will try to frame this as the government being responsive to differing opinions, they can’t hide the embarrassment of public defeat.
Another example of the Modi government squandering its parliamentary majority is the complete lack of movement on the Labour Codes. Passed over the course of 2019 and 2020 in Parliament, the four Labour Codes are yet to be notified either by the Centre or the states.
Again, it can be seen as a good thing that the government isn’t forcing through the legislation since it has been criticised by several stakeholders. But it can also be said that the government should have held more extensive consultations while framing the codes. It could have then used its majority in Parliament to pass legislation so that it actually sees the light of day. Again, a majority squandered.
The Modi government also has this peculiar fondness for bringing in legislation through ordinances. This is hard to understand since it only serves to undermine confidence in the parliamentary system, something the Modi government should instead be keen to bolster given its strength in that institution.
Then there are instances where the government has used Parliament well, but has then–through no fault of its own–seen responsibilities passed on to other, less decisive, bodies. Take the example of the Goods and Services Tax (GST). It was a landmark economic reform for the country. For the first time, India was one market for any particular good or service. This was a major pro-business reform. Parliament passed the relevant laws in 2017 and the new tax regime came into force in July that year.
Thereafter, decision-making on GST passed from Parliament to a federal body called the GST Council. This was the correct thing to do. The government can’t and shouldn’t approach Parliament each time it wants to change a GST rule, regulation, or tax rate. However, the flip side of easing decision-making was that too many decisions began to be made. Each GST Council meeting–of which there have been 49 so far–has changed the rules or the rates, and often both.
This is not the Modi government’s fault. But the fact remains that, despite being one of the strongest governments in India’s history in terms of parliamentary majorities and having enacted a historic taxation reform, we, unfortunately, have to see that reform flail around in a state of constant flux.
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Game-changing decisions
Finally, we come to the ‘decisive’, ‘game-changing’ decisions that have in fact increased uncertainty in the economy. The first, of course, was demonetisation in 2016. Whatever the stated objectives of the overnight ban of 86 per cent of currency notes, and whatever the achievement or failures of these objectives, the fact remains that people and companies are petrified that the Modi government will do something like this again.
There is perhaps no other policy decision in the recent past that has eroded confidence in the economy more than demonetisation has. Maybe the retrospective taxation imposed by the UPA in the Vodafone case, but even that was only aimed at corporates.
The other announcement that was decisive but also seemed arbitrary and unprepared was the imposition of the nationwide lockdown in March 2020 in response to the Covid-19 pandemic. A lockdown was the right thing to do. It gave the government time to rapidly ramp up crucial medical infrastructure.
The subsequent second wave in 2021, horrible and devastating as it was, would likely have happened sooner and would have been even more severe had we not bought ourselves those few months.
But the necessity of the lockdown isn’t reason enough for the slapdash way it was imposed. Much like with demonetisation, the entire country was informed of the decision just hours before it came into effect, and then multiple ad hoc arrangements were made to deal with crises as they arose. Think migrant labourers.
While the lockdown was necessary, unlike demonetisation, a few more days of preparation would have gone a long way. Instead, what it did was cement this government’s reputation of preferring sudden kaboom decisions. These are great politically—‘Modi can do anything’—but that very same line instils fear in everybody who stands to lose money from such a hammer-like approach.
A strong majority in Parliament was supposed to mean stability and predictability in decision-making. At least for India’s economy, this has not been the case with the Modi government.
The author tweets @SharadRaghavan. Views are personal.
(Edited by Theres Sudeep)