No party wins majority: What does a coalition government mean for economic reforms in India?

Since 1991, when India was forced to open up its economy and give up on the planned economy model, all governments were coalitions of the sort where even the lead party was quite far from the majority mark of 272. This obvious weakness of the leading party — be it the Congress or the BJP or the so-called third front — meant that India always had — to borrow the words of Montek Singh Ahluwalia (former Deputy Chairman of the erstwhile Planning Commission) — “a strong consensus for weak reforms”.

In other words, while everyone agreed that economic reforms were required, the parties of the ruling coalition pulled in different directions when it came to deciding the exact nature of an economic reform.

So, can a coalition government derail India’s economic reforms trajectory?

Not necessarily. There are two ways to look at it.

One, the past decade under PM Narendra Modi was supposed to sort out that weakness and provide confidence to investors — both local and foreign — about policy stability, and a concerted push towards economic reforms. That did not happen as envisaged.

While Modi’s first two terms saw several reforms such as the introduction of the Goods and Services Tax (GST) and the creation of the Insolvency and Bankruptcy Code, it was not exactly a smooth ride all through. For instance, the Modi government failed to bring about reform of land acquisition. Early in the first term an ordinance to this effect was taken back after the “suit boot ki sarkar” jibe by Congress leader Rahul Gandhi.

Similarly, during the second term, the Modi government could not convince farmers about the farm reforms and was forced to repeal them. Indeed, the announcement of the demonetisation with disastrous consequences injected a deep sense of uncertainty among all economic agents.

Two, if one looks back at India’s economic history since 1991, it becomes clear that coalition governments have undertaken some of the boldest and most visionary reforms that laid the foundation for India’s resurgence.

What were the notable reforms brought by the previous coalition governments?

The biggest example is the whole host of reforms during the P V Narasimha Rao-led government, which was essentially a minority government. It discarded centralised planning and opened the Indian economy to global completion by removing the licence-permit raj. The country also became a member of the World Trade Organisation.

Under the short-lived Deve Gowda government, then Finance Minister P Chidambaram came out with what is still referred to as the “dream budget”. It placed faith in the Indian taxpayers and cut tax rates — both personal income tax, corporate taxes, and customs duties.

Under the Atal Bihari Vajpayee-led National Democratic Alliance (NDA) government, India framed the Fiscal Responsibility & Budget Management (FRBM) law for fiscal rectitude, and limited the government’s ability to borrow within prudential limits. The Vajpayee-led coalition further advanced the push towards disinvestment of loss-making Public Sector Undertakings (PSUs), and focused on boosting rural infrastructure and connectivity through the PM Gram Sadak Yojana. The very first NDA also brought in the Information Technology Act, in 2000, that laid the foundation for the bustling e-commerce giant that India is today.

Under the Manmohan Singh-led United Progressive Alliance (UPA) India built on the Vajpayee era Sarva Shiksha Abhiyan to initiate the Right to Education Act. Singh’s government brought in several reforms under the rights-based approach — far more robust than the personal guarantees of an individual leader. These included the Right to Information Act, which boosted transparency in India’s democracy, and the Right to Food, which ensured that no Indian should go hungry. In the same light, the UPA brought in the Mahatma Gandhi National Rural Employment Guarantee Act (MG-NREGA), which provided minimum employment to the rural poor. Singh’s government also deregulated fuel prices before it left office and started work on direct benefit transfers as well as Aadhaar and GST.