THE phenomenal win for the Bhartiya Janata Party (BJP) in the Hindi heartland — combined with the perceived symbolism that this was a vote for development — will make it easier for the Centre to push through key reform measures, say government functionaries. An official in the Prime Minister’s Office said the election outcome, which comes in the backdrop of demonetisation, is a signal that people want the Centre to take bolder steps to stem black money, root out corruption and bring back illegal money from abroad. “Tackling the problem of non-performing assets (NPAs) is more a political call. The results will galvanise action on this and also expedite action on the strategic sale of PSUs,” the official said.
Top economic managers also say reforms will continue and, in fact, now gather speed. “The last bastion of caste politics has come around and voted for development. Finally, even Uttar Pradesh wants good governance and growth,” said Arvind Panagariya, Vice Chairperson, Niti Aayog. “I expect continued reforms while ensuring that the poor receive what the Prime Minister promised,” he said.
Given the size of Uttar Pradesh, both in terms of population and size of the state Budget, a strong development-based agenda can yield good dividends over the next couple of years, said Neelkanth Mishra, India Equity Strategist, Credit Suisse. In 2016-17, UP had a Budget of Rs 3,46,935 crore, more than 17.5 per cent of the Union government’s total expenditure.
“Uttar Pradesh accounts for 16 per cent of the country’s population. The size of its Budget is almost 20 per cent of the Centre’s Budget. But the state contributes just 11 per cent to India’s GDP,” pointed out Mishra of Credit Suisse. Better Centre-state coordination can boost its output and the state can add more to the national economy, he said.
While the Goods and Services Tax (GST) regime would have taken off in July this year irrespective of the election outcome, the Centre’s efforts to reform labour laws is likely to get a fillip. “Major work on labour (reforms) is more or less ready. The opposition to tough legislative reforms from the Opposition will be milder. The goodwill earned by the BJP will be respected by the Opposition,” said Mishra.
Former Chief Economic Advisor Arvind Virmani, who is now chairman, Policy Foundation, too said political opposition to the government’s economic policies would likely cease, both in the Rajya Sabha and among party and affiliated organisations. The “low-hanging fruits”, he said, are certain policy and institutional reform measures announced earlier. “Among these are the introduction of Direct Benefit Transfers for kerosene, food and fertiliser subsidies; acceleration of promised labour law reforms (amalgamating 44 labour laws into four sets of labour codes); promised strategic sales of public sector units, solution to the public sector banks’ bad loan problem,” he said.
When asked if the government can take cues from the election outcome to take bolder steps to tackle black money, Virmani said, “Demonetisation clearly did not play a negative role, though the extent of positive influence is difficult to determine from limited data. Any further steps on this matter are likely to run up against another declared objective of the government, namely to end ‘tax terrorism’, which is far more important for the growth of the economy and employment. So I hope that the government puts more emphasis on the latter objective than the former.”
Analysts, however, do not expect tough bills in the Lok Sabha or the Rajya Sabha given that the government is already at the end of its third year. “Labour reforms will happen. It’s more about many different laws being merged and codified into simple and lesser number of laws,” said Credit Suisse’s Mishra. He said the ruling party’s numbers in the Rajya Sabha will be bolstered next year, and it will not be before 2020 that it will have a majority in the Upper House.
Explaining how political strength helps resolve the NPA problem, Virmani said, “Any decision will be criticised by Opposition parties. However, with its hands strengthened by the electoral verdict, the government is in a stronger position to deal with any criticism. The key here is to take and implement decisions quickly, rather than to search endlessly for a perfect solution (which does not exist),” he said.