Parliament convenes on July 21, running until August 13. The two chambers will be seated for a total of 18 days. Rarely has the term “Monsoon Session” been more appropriate, as this session has the potential to be the stormiest since the Narendra Modi government took office in May 2014. Two big reforms are on the table, both having been passed by the Lok Sabha and awaiting consideration by the Rajya Sabha. The first, the Constitution (122nd Amendment) Bill, 2014, will create a national “Goods and Services Tax” (GST). The second, the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement (Amendment) Bill, 2015, relaxes some of the onerous rules on land acquisition in place since the law was first enacted in 2013. Together, these two bills provide the biggest legislative challenges yet to the Modi government’s ability to govern the national economy.
As we have reported several times since Modi’s election, and most recently in a June report, the Bharatiya Janata Party (BJP) remains very weak in the upper house of Parliament, or Rajya Sabha. The BJP controls only 48 of 245 seats. Congress remains the largest party in the Rajya Sabha with 68 seats, not counting the “Nominated” members of the Rajya Sabha. So far, this has not proven a difficult hurdle to moving legislation; Parliament has had some of its most productive sessions in decades. But the legislative agenda was largely focused on moving legislation that had either been originated by Congress, was less controversial, or was seen as responding to a major emergency, such as the Supreme Court’s revocation of coal licenses. But the GST and Land bills are different. The GST bill, as a constitutional amendment, requires a two-thirds vote plus the support of half of India’s states. And the Land bill directly revises a law passed by the Congress-led United Progressive Alliance (UPA) government.
The benefits of creating a national Goods and Services Tax have been covered in some detail. In fact, it ranks among the most reviewed and previewed reforms in India’s history. A recent CRISIL report claims that logistics costs may drop by 20 percent under the GST. A few years earlier, the National Council of Applied Economic Research predicted GST would add 0.9 percent to 1.5 percent to the nation’s GDP annually. A separate CRISIL report predicted that even a partial implementation of GST would reduce the nation’s fiscal deficit by about 1 percent by 2017.
The impact of amending the Land bill is more controversial. Any time you increase a government’s ability to exercise a form of “eminent domain,” it will be politically sensitive. Its benefits have also been less studied, though industry has noted the expected impact of the current law, such as when the Confederation of Indian Industry stated it believes the current law will triple land acquisition costs. In speaking with senior officials from the Ministry of Finance, they believe the Land bill is important for another reason—the slow land acquisition process is a key contributor to the growing book of bad loans; clearing up land issues will help position the financial sector to lend more aggressively as India appears moving into a period of quick economic expansion. There are rumors that if the Modi government cannot pass this bill through the Rajya Sabha, it may finally use the “trump card” of calling a Joint
Session of Parliament—a tactic only used three times in India’s history.
Prime Minister Modi has called an all-party meeting for July 20 to lay the groundwork for a productive legislative session. But, the Congress Party is rallying around questions of impropriety by senior BJP leaders including External Affairs Minister Sushma Swaraj and the chief ministers of Rajasthan and Madhya Pradesh. These types of obstacles will always come up and do not seem any more serious than similar disruptions caused by the BJP while in opposition. The question is whether the Modi government can enact legislative reforms beyond those initiated by the last government or those triggered by crisis. The table is set for an interesting Parliament session.
Authored By: Richard M. Rossow
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