Maintaining continuity: Govt should be able to push economic reforms

History shows that coalition govts in India can implement economic reforms. But what the govt may find difficult to push are political ideas like "One Nation, One Election" and the Uniform Civil Code

The third Narendra Modi government completed the first 100 days in office on Tuesday. It also coincided with Mr Modi’s 74th birthday, which, as communicated by the government, is being celebrated as the beginning of “Seva Pakhwada” by several organisations and will conclude on October 2. The Union government took several decisions in the first 100 days, including sanctioning several infrastructure projects. Among the big decisions, the Union government has extended the Ayushman Bharat scheme to all senior citizens aged 70 and above and introduced the Unified Pension Scheme for its employees. In the context of increasing India’s manufacturing capacity, which is essential to create jobs, the government has announced an industrial-corridor programme with 12 industrial nodes. To tackle the employment issue, the first full Budget of the new government introduced incentives for companies to increase hiring and announced an internship programme in the country’s top 500 companies.

While the government took several decisions in the first 100 days, the broad message is that of continuity with incremental change. This was also reflected in Cabinet formation. Most of the economic and security leadership was retained from the previous term. However, the structure of this term of the government is very different from the last two. For the first time since 2014, the Bharatiya Janata Party-led government is critically dependent on the constituents from the National Democratic Alliance to run the administration. And if the first 100 days are any indication, it will need to work with a more consultative approach and accommodate the views of the allies. This was clearly reflected in the reversal of the lateral hiring decision after key constituents raised objections related to reservations. Besides, the government now faces a more vocal and zealous Opposition, which is making its presence felt more than ever since 2014.

While governments and political dispensations are often driven by events and exogenous factors sometimes do pose challenges, given the record of the first 100 days, it is worth debating how economic decision-making will progress. As the Budget showed, the government is likely to remain focused on large public expenditure to boost growth and increase the medium-term potential. The government has also reiterated its commitment to fiscal consolidation and talked about a revised framework, which needs more clarity. It would be interesting to see how the government balances fiscal consolidation and high capital expenditure. In terms of broad economic reforms, it should not face much difficulty as long as the changes are incremental and pursued after adequate consultation. The government is also likely to continue with capital subsidies and production-linked incentives to build India’s industrial base.

However, this may not be enough to make India a significant force in manufacturing and a critical part of the global value chain, which is essential for boosting output and generating employment at scale. In this context, as announced in the Budget, the government will comprehensively review the Customs rate structure to simplify it and improve ease of trade. Although not much is known about what is happening on this front, it is hoped that the review will be ambitious enough to significantly reduce rates and allow Indian producers to integrate with global and regional value chains. Overall, as history shows, coalition governments in India are capable of implementing economic reforms if such measures are well thought through. What the government may find difficult to push are political ideas such as “One Nation, One Election” and the Uniform Civil Code.