Reform resolution

Government must not give up on difficult reform

As the Budget session of Parliament begins, there is a palpable sense of occasion. There is every reason to believe that this will be one of the most important sessions for the government and indeed the Indian economy. Expectations from the second Budget of the Narendra Modi-led National Democratic Alliance government are sky-high. There is now a sense of impatience about the pace of reform. Mr Modi was granted the benefit of 282 seats in the Lok Sabha in May 2014, something the Indian electorate has not granted anyone for 30 years. If expectations are unprecedentedly high, they only match the situation: the first post-reform political majority of a single party. Yet there is another straw in the wind, too: the fear that, after the ruling Bharatiya Janata Party was decimated in the stunning Delhi elections by a party that had embraced populist economics and made an electoral promise of lower water and power tariff with the help of higher subsidies, the government may decide that tough economic reform may not be in its own best interest.

Were the government to step back from real reform, it would seal its own fate. It has already left it later than it should have. The truth is that the government was not elected for economics or politics as usual. Politics as usual does not deliver a simple majority in a coalition era. Nor was the Delhi election a simple vote for economic populism. It could as easily be read as a response to a central government that did not seem to be as drastic a break with the past as many had expected. Many governments have come to grief in India as a consequence of over-interpreting midterm elections. It is to be hoped that Prime Minister Narendra Modi is too canny a politician to lead one such government. Reports are emerging that the government is willing to dilute aspects of its ordinance amending the land acquisition Act that became a law under the last dispensation. If it feels this is essential to get the cooperation of Parliament, so be it. Once a bad law is passed, it is several times as difficult to repeal it. In this case, some middle way must be found that ensures that land is available for big projects without dispossessing too many people and without too unreasonable a compensation. However, even if it has to dilute the ordinance, the government must not give up on other tough reform. Much remains to be done - removal of kerosene and fertiliser subsidies, labour law reforms, relaxing the restrictive factories legislation, facilitating direct transfers of benefits to the needy sections of society, food distribution reform and privatisation. None of these decisions will be easy, but all must still be on the government's agenda.

The fear is that, buoyed by a cyclical uptick in the economy and by fortuitously low fuel prices and surprisingly high proceeds from various capital receipts such as auctions, the government will produce a Budget, and a Budget session, that is big on rhetoric and a vision for the future, and has feel-good sops for exporters and investors and taxpayers - but little in terms of painful structural change. This would certainly lead to good headlines and a political tailwind. But that would be temporary. In the end, the government itself could suffer as disappointment sets in. India cannot afford further delays; Mr Modi's government must be resolute.