“There is bound to be resistance to change or reform. But it cannot be done in stealth”
- Narendra Modi, Prime Minister of India, at G20 Plenary Session in Brisbane, Australia
Reforms, in any area of governance, are a function of political will. Managing the balance of power within the government and the continued trust and goodwill of the electorate are factors which serve not only as the source of political will but also nourishes and sustains it. This is more pertinent in a parliamentary democracy like India, with its demographic and territorial size, its diversity as also its federal structure and constitutional distribution of legislative powers between the Union and the State legislatures.
The National Democratic Alliance government led by the Bharatiya Janata Party (BJP) came to power in May last year with a massive mandate. The general elections saw the worst ever electoral defeat of the Indian National Congress party which had headed a coalition government for a decade and for much of post-independence India. The last years of the previous regime were mired in a series of corruption scandals, unwise economic decisions, oppressive business environment, and ultimately a policy paralysis, that severely corroded the image of the government among the electorate.
The BJP, lead by Mr. Narendra Modi, successfully tapped into the voters’ sense of despondency with the promise of high economic growth and a responsive administration. The new Prime Minister, Mr. Modi enjoys almost unquestioned authority in the Government. His party is the single largest in the Parliament and is in power in at least 7 Indian States, which gives him ample power and opportunity to bring in legislative changes to fulfil his economic agenda.
The journey so far
Mr. Modi’s stamp as an efficient, result-oriented administrator as the Chief Minister of the State of Gujarat is seen in his lean cabinet, placing of key party legislators in critical ministries and empowering of bureaucrats to cut red-tape and innovate. Early initiatives give a glimpse of the government’s wider vision of creating a growth-oriented ecosystem.
The National Mission for Financial Inclusion (Prime Minister’s Jan Dhan Yojana) is an ambitious project which aims to provide every household in the country with at least one bank account. It is an effort to bring millions of India’s poor into the financial mainstream and ensure direct transfers of subsidies to the bank accounts of intended beneficiaries. 15 million bank accounts were opened on the very first day of the Mission.
Inspired with the vision of converting India into a global manufacturing hub, the government conceptualized the ‘Make in India’ initiative. It is expected to help create over 10 million jobs, spur growth and boost per capita income. Concomitantly, some positive steps have been taken to introduce flexibility in labour laws and focus on skill development. Measures to end ‘Inspector Raj’ with a system that is expected to sharply curb the element of discretion with labour inspectors and a single window compliance process for companies on labour-related issues. The six schemes which have been streamlined are universal account number (UAN) for subscribers of the Employees Provident Fund, on-line compliance system for labour laws, a new labour inspection system, a revamped Industrial Training Institutes (ITIs) and apprenticeship scheme to give requisite skills to the workforce. The health insurance plan for unorganised sector workers is also being tweaked.
Reflecting Mr. Modi’s mantra of ‘minimum government maximum governance’, one of the first initiatives of the government was to identify 288 archaic and redundant legislations for repeal as promised during his election campaigns. Many of these laws date back to the colonial era and the post independence phases of law making where the government commanded economic activities. Of the 3000 odd Central laws and numerous subordinate legislations, there are many that have long outlived their utility, are repetitive, and inconsistent with later amendments. This maze of confusing laws is fraught with legal risks and uncertainty creating a payoff culture for those who can afford to wriggle out of contraventions and an overburdened judiciary.
Another area of concern for the global investors has been environmental clearances required for various projects. The laws and procedures are opaque and prone to rent seeking and have little relevance to changing needs. The government set up an expert committee to review forests and environment laws with the aim to integrate environment, economic and social concerns in the development paradigm. The committee’s recommendations not only aims at making it easier to set up industrial or infrastructure projects, but also ensures that those who flout pollution norms or violate green laws are penalised heavily. It has also recommended settling on a definition of ‘forest’ and identifying ‘no go’ areas with over 70% tree canopy. The committee has recommended creation of new institutions — National Environment Management Agency (NEMA) and State Environment Management Agencies (SEMA), a new All India Environment Service, a ‘national laboratory’ that will host a databank of all environmental parameters, and introduction of digital and non-tamperable methods of monitoring compliances.
Allocation of natural resources, one of the most corruption-ridden sectors, has also received attention of the government. In the coal sector, the government has ,allowed mining by private companies, bringing in trading practices of international standards, granting more autonomy to government run coal companies and setting up a coal regulatory authority.
The economic growth ecosystem cannot be complete without a business friendly tax regime. The long pending Goods and Services Tax (GST) Bill has been introduced in the winter session of Parliament. The GST will integrate the indirect taxation schemes across the country. Bilateral advance-pricing agreements (APA) are also on the cards with major Japanese Corporations, with Mitsui, Toyota and Marubeni being the first ones to do so. It is also been widely reported that India will soon renegotiate its tax treaties with Germany, France, Singapore, Italy and South Korea to pave the way for bilateral APAs with those countries.
The government is also working on subsidy reforms cutting wasteful subsidies on fuel, fertiliser and food. Diesel pricing has been deregulated. The first subsidy reform on cooking gas (LPG fuel) to plug leakages got off the ground from 1 January 2015 with all subsidies going into the bank accounts of the intended beneficiaries.
A comprehensive “Communications Bill” to overhaul the way in which the telecom sector is presently regulated is on the anvil. This sector was hit by major corruption scandals during the previous regime. The government has expressed its intent to reduce its role in regulating this sector and limit its focus to issues of security, morality, public safety, and disaster management and to promote competition and optimal use of spectrum. The new Bill is expected to repeal the archaic Indian Telegraph Act, 1885, Indian Wireless Telegraphy Act, 1933 and the Telegraph Wires (unlawful possession) Act, 1950 and the Telecom Regulatory Authority of India Act, 1997.
Another area of reforms to boost investor confidence is the financial sector. The government proposes to implement the Financial Sector Legislative Reforms Commission report that has recommended an overhaul of this sector. The legal and institutional structures of the financial sector lie in over 60 laws and numerous regulations and require harmonizing of contradictory provisions.
Early challenges to reforms
8 months down the road, the gap between the promise and delivery has widened. The government has not been able to pass important legislations in the last couple of Parliament sessions. Opposition parties united to disrupt proceedings over the Sangh Parivar’s (collective term for right wing Hindu organisations - the Rashtriya Swayam Sewak Sangh (RSS), Vishwa Hindu Parishad (VHP) and Bajrang Dal), of which BJP is a part, polarising actions. Articulation of concepts like Ghar Wapsi (reconversion of Muslims and Christians to Hinduism) and Love Jihad (opposition to an alleged movement of Indian Muslims to marry Hindu women) have tested Mr. Modi’s inclusive development agenda. Mr. Modi’s silence in Parliament on the activities and utterances of the Sangh Parivar entities gave the impression of the government’s tacit support to such divisive agenda and ensured that the government was unable to undertake any significant legislative business in the last 6 months.
Government then resorted to promulgating ordinances to bring in some important changes to the legal framework. An ordinance is a temporary legislative measure available to the Executive, under the Constitution, to make laws when Parliament is not in session, subject, of course, to its ratification within 6 weeks from the date of reassembly of Parliament.
- Insurance Laws (Amendment) Ordinance 2014 aims at lifting the cap on foreign investment in insurance sector from 26% to 49%.
- The Mines and Minerals (Development and Regulation) Amendment Ordinance 2015 provides for competitive bidding through auction route and gives existing mining leases substantial extension providing production stability.
- The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement (Amendment) Ordinance, 2014 has amended the 2013 law removing mandatory “consent” clause and Social Impact Assessment (SIA), in case, the land is acquired for national security, defence, rural infrastructure including electrification, industrial corridors and housing for the poor including PPP where ownership of land continues to be vested with the government.
- Citizenship (Amendment) Ordinance 2015 which primarily seeks to change the categorisation of Non Resident Indians (NRIs) from Persons of Indian Origin to Overseas Citizen of India to encourage and facilitate NRIs to be party to India’s growth story through their capital, technical prowess and entrepreneurial skills.
- Coal Mines (Special Provisions) Second Ordinance 2014 was re-promulgated because the bill remained pending in the Upper House of the Parliament after being passed by the Lower House.
The ordinance route of law making was been widely criticised for bypassing democratic processes. The land acquisition ordinance in particular drew flak for virtually doing away with social impact assessments amounting to taking away land and livelihood of land losers without any scrutiny. Uncertainty of the ordinances lapsing when its term expires if not converted into legislations is hardly conducive to investor confidence, though the government has assured investors that it would call a joint session of Parliament, where the government will have majority, to pass the bills, if the ordinances cannot be ratified by Parliament in the Budget Session starting February 2015. All investments made during the ordinance period will be irreversible whatever the outcome of the ordinances.
The business community and foreign investors have been looking for more signs of economic reforms that were expected of this avowedly pro-business government. The government has been tardy on its plans to disinvestment in public sector undertakings and is unlikely to meet its fiscal deficit target before the financial year ends in March 2015. Little has been heard about the government’s specific plans to reform the power sector where insufficient generation, power thefts and transmission losses plague the electricity distribution companies. The government’s FDI policy is ambivalent, selective in opening of sectors and still denying entry to multi-brand retail.
Judicial reforms and the question of judicial independence
Indian judiciary led by the Supreme Court has played an important role in the realisation of Constitutional ideals. However, the tug of war between the Judiciary and the Executive over the appointments to the higher Judiciary i.e. High Courts and Supreme Court, has seen another turn with the passage of National Judicial Appointments Commission Bill, 2014. The Bill puts an end to the collegium system (appointment of judges by a collegium of senior most judges) which had given the judiciary supremacy over the executive on judicial appointments for over two decades. The Bill reverses that position by creating a National Judicial Appointments Commission comprising of the Chief Justice of India as the Chairman, Union Law Minister, two senior-most Supreme Court judges and two eminent persons. The two eminent persons will be selected by a collegium comprising of the Prime Minister, Chief Justice of India and leader of the opposition or the leader of the single largest party in the Lok Sabha. Appointments of the Chief Justice of India and other Judges of the Supreme Court and Chief Justices and other Judges of High Courts through the judiciary’s collegium system had been a highly secretive and non-transparent procedure and the quality of judges who held positions in the highest courts were often called to question by the law-makers and the bar.
The beauty of hope is that even when there is nothing perceptively different in the circumstances, it keeps the spirits alive. Mr. Modi’s government through campaigns such as Clean India, Make in India, Jan Dhan Yojana, Beti Bachao Beti Padhao (about saving and educating the girl child), has kept the rhetoric of change alive in the public mind. It remains to be seen how quickly he can recast the legal and institutional architecture of India to meet the demands of an aspiring nation. His Sabka Saath, Sabka Vikas (collective efforts inclusive growth) will come to nought if he is unable or unwilling to keep the Sangh Parivar outfits in check.
By Srinivas Kotni (Founder & Managing Partner of Lexport) and co-authored by Madhumita Mitra and Ajay Yadav