Modi faces parliamentary challenges to reform agenda

Modi faces parliamentary challenges to reform agenda

Indian Prime Minister Narendra Modi is facing his first major test in Parliament as opposition parties have closed ranks to vote against key reform bills intended to give a major lift to the economy.

Modi's National Democratic Alliance (NDA) enjoys a majority in the Lok Sabha (334 out of 541 members), the lower house where members are elected directly by the people. But it is in the minority in the 241-member Rajya Sabha where members are elected by state lawmakers.

The upper house is where opposition parties led by Congress, the grand old party of India, are threatening to derail the goods and services tax (GST) bill, amendments to the Land Acquisition Law, and a bill on foreign direct investment in the insurance industry.

The ruling alliance has 61 members in the upper house, 18 fewer than the Congress-led United Progressive Alliance (UPA). Moreover, a half-dozen regional groups with about 50 members have joined hands with the Congress to stall the bills. Even the Maharashtra-based Shiv Sena, a key coalition ally of Mr Modi's Bharatiya Janata Party (BJP), has sent confusing signals about its support.

Even though the GST and insurance FDI bills were its babies originally, Congress has refused to commit its support. It has said that it would vote against them if the Modi government made any changes to their original profile. "There is no blank cheque in legislation or politics. God and the devil lie in the details," said Congress spokesman Abhishek Manu Singhvi.

Trinamool Congress (TMC), which rules West Bengal and has a dozen members in the Rajya Sabha, has taken the lead in stalling the bills. It is backed by the Samajwadi Party (SP), a state party that rules Uttar Pradesh; Janata Dal (United), which controls Bihar, and the two Communist parties. All told, these small parties and their 50 members in the Rajya Sabha have thrown their support behind Congress for now.

The government side has support in the upper house from Biju Janata Dal and its seven members from Odisha, and 11 members of the All India Anna Dravida Munnetra Kazgham which runs Tamil Nadu. The 10-member Bahujan Samaj Party (BSP) and the Nationalist Congress Party (six members), a Congress splinter group from Maharashtra, have yet to clarify their stand.

The Modi government might try to creating division in the opposition ranks by wooing the SP and the BSP and other smaller parties. Alternatively, it could call a joint session of Parliament to ratify the bills. Under the latter approach, the government would have 396 members, four more than a simple majority, provided Shiv Sena stays on board.

Besides the insurance, GST, and land acquisition bills, the government has tabled 33 other bills for consideration of the parliament in the current month-long session that is scheduled to end on Dec 23. "Narendra Modi's statecraft will be tested in the parliament," said DK Joshi, chief economist of CRISIL, a global ratings agency affiliated with Standard & Poor's.

Ironically, the insurance and GST bills were initiated by the government of Modi's predecessor, Manmohan Singh. But they failed to pass because of opposition from the NDA.

Jagdish Shettigar, an economic adviser to former prime minister Atal Behari Vajpayee and a former member of the BJP national executive, regrets the outcome. "I failed to convince the party because it is always a political decision. I was isolated in the BJP," Shettigar said in an interview with Asia Focus.

So what is at stake? The following is a summary of the three bills under consideration:

Insurance bill: The Insurance Laws (Amendment) Bill 2008 aims to increase the FDI cap to 49% from the present 26% and would involve amendments to three insurance laws. The insurance industry in India hopes that raising the foreign shareholding ceiling could attract as much as US$2 billion in investment and fuel new development as insurers would be in a position to extend credit to the infrastructure sector. The increased foreign limit would apply to the pension industry as well.

India is the 10th largest insurance market in the world and according to some estimates, only four percent of its population has coverage. The sector is currently dominated by public-sector companies. The union government provides coverage to poor workers in the unorganised sector under a National Health Insurance Scheme. The bill is currently being studied by a 15-member committee and will be returned to the house by Dec 12.

Goods & Service Tax: The GST, first mooted several years ago, is intended to replace a host of taxes including excise, sales, value-added tax and others with a uniform tax system. Supporters say that if successfully implemented, it would add at least two percentage points to gross domestic product.

The union government hopes to put the law in place by March 2016. However, after parliamentary approval it will need the consent of all 29 state governments since they will share in the revenue collection. The GST, according to Mr Joshi of CRISIL, would push GDP growth by one percent and be fiscally prudent.

Land Acquisition Act: The Land Acquisition, Rehabilitation and Resettlement (LARR) Act 2014 was passed by the former UPA government at the behest of Congress vice-president Rahul Gandhi to ensure windfall compensation for farmers. The Modi government's amendments aim to control the cost of land, spur construction of affordable housing make it easier to carry on real estate business in the country. However, the Congress is expected to leave no stone unturned to oppose any tinkering with the Gandhi family's legacy.

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