Why does the Bharatiya Janata Party, or BJP, appear to have softened its stance on the insurance sector Bill? Reports suggest that the BJP may now be willing to support the Bill in the ongoing monsoon session of Parliament provided some of its conditions are met. BJP leader Yashwant Sinha may still be opposed to the insurance Bill, but there are several other voices within the party that are keen on moving ahead with insurance reforms as proposed by the United Progressive Alliance (UPA) government. And the conditions now proposed by a party that has steadfastly opposed the insurance sector reforms for the last several years are significant in that they make you wonder why a deal on these lines between the government and the BJP could not take place earlier.
There is nothing startlingly new in ideas such as capping voting rights at 26 per cent of foreign equity or restricting foreign direct investment to 26 per cent while allowing a total foreign investment (including portfolio investments from foreign institutions) of up to 49 per cent in insurance ventures. Yet, these conditions alone seem to have brought the government and the BJP closer to a deal. So, what has really broken the ice? Is it better political management by the Congress? Have the Congress leaders gone out of their way to convince the BJP leaders of the need to meet them halfway and agree to a compromise deal on insurance sector reforms?
It is likely that in the last few weeks the Congress may have displayed more prudent political management to convince the BJP on insurance sector reforms. But there is another potent factor that may have helped the two political parties come closer to each other on this issue. This is the BJP's realisation that supporting the insurance Bill is perhaps in its interest. This follows from a conventional and widely accepted view that India's political parties come together and drop their differences whenever they sense that an economic crisis is brewing and it can become so serious that the economy can grind to a halt, severely restricting the space for their political play for some time to come.
This is the lesson India's political parties learnt from the 1991 economic crisis. If the path-breaking economic reforms could be implemented even by a minority government headed by P V Narasimha Rao in the first couple of years of his tenure, it is largely because the Opposition political parties, even those belonging to the Left, realised that their opposition to the government's decisions then would be counterproductive as any further political instability could drive the economy to further chaos. Those Opposition leaders were still reeling under the impact of what happened in early 1991, when the Congress under Rajiv Gandhi had withdrawn support to the Chandra Shekhar government barely days before the latter was to present its first Budget in the backdrop of a worsening economic crisis, plunging the country into prolonged political instability. It was a case of politicians realising that they needed a reasonably stable economy to play their politics.
That understanding was again in evidence when the United Front government was forced to go for a leadership change in 1997. A Budget had been presented in February 1997 under a government headed by H D Deve Gowda. But even before the Budget could be passed, Mr Deve Gowda had to step down for lack of political support. A new government, with Inder Kumar Gujral as prime minister, was sworn in. Only a few ministers were reshuffled and, mercifully, P Chidambaram continued to function as finance minister. There were questions about the legitimacy of the Budget presented under an earlier government. But those were quietly swept under the carpet and not too many discordant voices were heard. The same Budget, presented by the Deve Gowda government, was passed by the next government headed by I K Gujral. Wasn't the fear of an economic crisis if the Budget exercise had to be repeated all over again a factor behind that cosy arrangement accepted by all political parties?
A worse situation arose when the National Democratic Alliance government of Atal Bihari Vajpayee lost its majority in the Lok Sabha in 1999. The Budget had been presented but not passed by the Lok Sabha. The country was staring at a general election, but the Budget for the year had not been approved. So, what did the politicians do? Even though the Vajpayee government had lost the confidence of the lower House, all the key political parties agreed to approve the Budget, so that the economy did not suffer.
India's economic crisis today seems to have reminded the political class that the room for political space is once again getting restricted, with the fundamentals of the economy showing signs of strain, the rupee losing its value against the dollar, the current account deficit remaining uncomfortably high and economic growth showing no signs of revival. For the BJP leaders, it appears, agreeing to the insurance sector reforms is one way of allowing the government to send out a signal to the international investing community that India's political system would not come in the way of basic economic reform measures. This might help prevent a downgrade of India's international credit rating and a worsening of its economic crisis. If general elections are still a few months away, the BJP may have reasoned that continuing to play obstructionist politics may be counterproductive at this stage and even harmful for its prospects as a party that seeks to form the next government.