Strength of conviction

BJP govt should use majority to undertake pending reforms

Union Finance Minister Arun Jaitley, speaking at an ASSOCHAM meeting last week, made an important point about the nature of governance in India that deserves to be examined carefully — especially as it may be central to the Narendra Modi-led National Democratic Alliance government’s pitch for re-election. Mr Jaitley mentioned the swift action taken by the government to replace the independent directors in the Infrastructure Leasing & Financial Services (IL&FS) crisis as an example of how strong leadership operates. This was a sign, Mr Jaitley argued, of how essential a strong government was: “If this path of high growth is to continue... India needs a strong and decisive government at the Centre.” The finance minister’s point was clear: That the current administration is capable of providing that decisiveness. Mr Jaitley underlined his point by saying that “unstable coalitions and aspiring politicians” would prove to be a challenge for the economy.

Mr Jaitley is not wrong to single out decisiveness as an important factor. Certainly, governments that feel paralysed are dangerous for the economy, as the 2012-13 slowdown demonstrated. However, the same can’t be said about the rest of his argument. For one, the period since 1991, marked by coalition governments, has also been the period in which there has been liberalisation. While the reform momentum has not been strong, it has been irreversible in large part — a “strong consensus for weak reform”. Indeed, it is worth remembering that the original reform package was itself passed by a minority government, that of P V Narasimha Rao. Indeed, it is ironic that the reform momentum of that government noticeably slowed when it achieved a majority in the Lok Sabha from 1993. Also, the United Front governments of the late 1990s — unstable coalitions if ever there were ones — managed to be among the more reformist in India’s history. The ‘dream Budget’ of 1997, which among other things introduced a simplification of the income-tax system that endures to this day, was presented under that government. Clearly, on these occasions, a lack of “stability” to the coalition did not translate into weakness in terms of policy reform. 

Similarly, the first iteration of the UPA government was able to introduce many major policy changes — whether for good or bad — in spite of having to deal with problematic support from the Left parties. Indeed, it is when the Congress’ hand was strengthened following the 2009 election that the UPA ran into political trouble. Indeed, the IL&FS example Mr Jaitley cited was patterned on the intervention taken by the United Progressive Alliance government — presumably less stable than the NDA — to deal with the crisis in Satyam. The truth is that the effectiveness of any government depends upon the strength of its conviction and its ability to shape the policy agenda. Viewed from that perspective, the current government — granted a single-party majority for the first time in decades — should remind itself that it has a few months of its tenure left when it can undertake reforms. Indeed, as former Reserve Bank of India governor Bimal Jalan recently said, why wait for the 2019 elections? The government can prove its ability to take tough decisions by simply initiating a whole host of pending reforms.