Originally Published 2018-05-31 10:11:01 Published on May 31, 2018
India's government will birth two major policies before 2019 elections

Unless Prime Minister Narendra Modi calls them earlier, India’s next general elections will begin on Monday, 8 April 2019. Working backwards, the Code of Conduct under the Election Commission of India — under which the government cannot announce new projects, programmes, concessions or financial grants to prevent it from influencing voters — should be in force from Friday, 8 March 2019. As he begins the final lap of his tenure as Prime Minister, Modi has just about nine months to deliver new economic reforms and policies. The next 287 days, therefore, are going to be crucial on two counts. First, Modi needs to continue to push economic reforms and deliver GDP growth and jobs. And second, he needs to keep Elections 2019 in mind and manage welfare politics. In this essay I argue that only those reforms would move ahead that are already in the system, as he focusses on and seeds welfare schemes till Elections 2019.

< lang="EN-GB" xml:lang="EN-GB">The first four years of Modi's tenure < lang="EN-GB" xml:lang="EN-GB">that ended on 25 May 2018 delivered nine key policies. First, financial inclusion through the Pradhan Mantri Jan Dhan Yojana. Second, speeding up the process of business conflicts and their arbitration through the Arbitration and Conciliation (Amendment) Act. Third, clearing the cobwebs of inefficiency in the energy sector through Hydrocarbon Exploration and Licensing Policy (HELP). Fourth, strengthening India’s identity tool to empower citizens and push targeted benefits into welfare programmes through Aadhaar. < lang="EN-GB" xml:lang="EN-GB">Fifth, bringing a law to < lang="EN-GB" xml:lang="EN-GB">tackle business failure through the Insolvency and Bankruptcy Code (IBC). Sixth, taking one more step towards ending unaccounted-for wealth through the Benami Transactions (Prohibition) Amendment Act. Seventh, pushing the fight against black money to an extreme through demonetisation of Rs 500 and Rs 1,000 notes. Eighth, introducing a regulator for real estate through the enactment of the Real Estate (Regulation and Development) Act (RERA). And ninth — the most effective policy that has taken three decades to come to life — bringing efficiency in indirect taxes through introduction of the goods and services tax (GST).

< lang="EN-GB" xml:lang="EN-GB">Four of these policies are a culmination of work in progress.< lang="EN-GB" xml:lang="EN-GB"> Aadhaar that was created in January 2009 under then Prime Minister Manmohan Singh. The GST that was first seeded under then Prime Minister Rajiv Gandhi through his Finance Minister V.P. Singh in his 1985 Union Budget speech in the form of MODVAT (modified value added tax). The Benami law that was first enacted in 1988, again under Rajiv Gandhi. The Arbitration amendment that has a history going as far back as 1899; in Independent India, the Arbitration and Conciliation Act was enacted in 1996, under then Prime Minister Atal Bihari Vajpayee. Another four are new ideas. These include the Jan Dhan Yojana, HELP, IBC, and RERA. And one — demonetisation — is a throwback to almost four decades ago, when in 1978, then Prime Minister Indira Gandhi demonetised high-denomination notes of Rs 1,000, Rs 5,000 and Rs 10,000, which Modi, using the modern financial architecture including KYC (know your customer) norms, relaunched to control unaccounted-for money.

The maturing of a leader towards delivering policies from articulating politics takes time; Modi took two years to mature. Although he had come prepared and caught the policy ball running by launching the Jan Dhan Yojana within three months of his tenure in August 2014 and the arbitration amendment in December 2015, most of the big legislations and policies took two years to come. Call it the mechanics of the Prime Minister's Office or the management of politics in Parliament, six of these nine major policies came to life in 2016. HELP and the Aadhaar law were launched and enacted in March 2016, the bankruptcy code and Benami amendment were enacted May 2016, demonetisation and RERA were launched and enacted in November 2016. The most important policy legislation under Modi, the GST, was put in force in July 2017.

In the last nine-month lap of his tenure, Modi is unlikely to introduce any further policy disruption into India’s economy. With elections looming, a policy like GST or demonetisation would be like committing political suicide. But even a push on tamer policies such as RERA to get States to deliver protections to consumers in real estate could be construed as trampling on Part XI of the Constitution that seals the limits of Centre-State relations and one that the Opposition would welcome with glee. Minor tinkering, like the last round of IBC amendment through an Ordinance that reportedly brings consumers at par with financial creditors (the Ordinance has not yet been made public or signed into law by the President), will continue. This in particular is a legislative copout that helps a handful of super-rich second-home buyers in Noida than any thought-through law — hopefully, once the Ordinance lapses, it will not be revived by Parliament. Two crucial reforms that India needs are around land and labour. Neither of these will see the light of day in the next nine months.

What is likely to go forward in the forthcoming 287 days would be two important policies. First, passage of the Financial Resolution and Deposit Insurance(FRDI) Bill, 2017, which creates a process, with early-warning systems in place to alert regulators and the government about the risk on financial institutions. For a $2.5 trillion economy to not have such a system shows a legislative lacuna around managing bank failures that this Bill fixes. The trouble here would be how Modi can address Clause 52 or the ‘bail-in’ clause that proposes to give power to the resolution corporation to take part of the money of consumers (deposits in banks, for instance) to keep financial institutions afloat. This clause was put in so that "tax-funded bail-outs become less likely", and all equally-placed claims would be written down to equal degrees, so that there is equal treatment of similarly placed creditors. All Modi needs to do is either remove this clause or ensure that the Reserve Bank of India (RBI) protects consumers by making this clause an option written into the FRDI law — and not left at the mercy of regulations by a consumer-blind RBI.

The second policy that may turn into a major reform if used intelligently is around providing health insurance for the poor. Approved by the Union Cabinet on 21 March 2018, the National Health Protection Mission (NHPM) allows India to take one more step forward towards financing the delivery of healthcare for the poor. Its objective is to provide a health cover of Rs 5 lakh (about 6,265 Euro) for secondary and tertiary care to 100 million poor and vulnerable households or 500 million individual beneficiaries. This is part of the government’s larger agenda of achieving universal health coverage by improved access and affordability of quality secondary and tertiary care services through a combination of public hospitals as well as private care providers. With the GST stabilising towards a rising trajectory of collections, Modi will enter Elections 2019 with a full treasury and NHPM is likely to be the first social sector policy to be financed by those collections. Of course, much depends on how State governments react to and work with NHPM, but we believe this policy will yield political gains across India — it will be for National Democratic Alliance what MGNAREGA was to the first United Progressive Alliance (UPA1).

This commentary originally appeared on ISPI.

The views expressed above belong to the author(s). ORF research and analyses now available on Telegram! Click here to access our curated content — blogs, longforms and interviews.


Gautam Chikermane

Gautam Chikermane

Gautam Chikermane is a Vice President at ORF. His areas of research are economics, politics and foreign policy. A Jefferson Fellow (Fall 2001) at the East-West ...

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Guillermina French Fundacin Ambiente y Recursos Naturales (FARN)

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