20 August, 2015
On the face of it, the government is in damage control mode, having been rocked by the consecutive strikes of "Swarajgate" and the "Vyapam scam", coupled with an aggressive and combative opposition that refuses to let proceedings in Parliament go on without the resignation of certain ministers of the ruling Bhartiya Janata Party (BJP). The suspension of 25 Members of Parliament (MPs) of the Congress, the largest opposition party, by the Speaker of the lower house of Parliament, also looks like a tactical error. With the other opposition parties rallying behind the suspended MPs, there are numerous opinions on whether the government's stance to support its embattled ministers backfired on it, particularly when it looked to have hit its straps on its legislative agenda. It is clear that the Congress spots an opportunity in its continued disruption of the Parliament.
This logjam is the most recent in a series of events that has led some in the business community to believe that the sheen is beginning to wear off the government and that the government will be unable to push through further reforms. The government, however, clearly has different plans – in the absence of a disruptive opposition, it has managed to ensure passage of the Delhi High Court (Amendment) Bill, 2014, the Negotiable Instruments (Amendment) Bill, 2015 (to replace an ordinance passed on the same subject in the previous session of Parliament), and the Repealing and Amending (Fourth) Bill, 2015 (to repeal legislations that have been deemed redundant by the government).
While the combativeness of the opposition has resulted in a shorter monsoon session of Parliament and the stalling of the passage of the goods and sales tax (GST) bill (and the accompanying constitutional amendment), it does not appear to have forced the government away from its pro-reform agenda onto a more populist and less development-friendly agenda. Indeed, the supposed climb down of the government on the land acquisition bill (by agreeing to withdraw the exemptions provided in the previous amendment ordinances on the consent and social impact assessment clauses) is also being interpreted by political watchers as an astute move. While the failure of the opposition to reciprocate the government's olive branch has lent credence to the now oft-cited view of an obstructionist opposition, this does not particularly affect the government's pro-reform agenda as the Indian Constitution provides that land acquisition can be legislated by both the central and various state governments. Therefore, as long as any state's land acquisition bill has the assent of the President of India, such state can provide for a more development-friendlyland acquisition policy – a model that has already been adopted by states like Gujarat to woo Indian business interests as well as extensive foreign direct investment for the establishment of factories and production units.
The government has also been wrong-footed by the unexpected controversy on the proposals for the constitution of the monetary policy committee which amongst others proposes to take away the supposed "veto" power of the governor of the Reserve Bank of India (RBI). It is noteworthy that currently while the RBI governor has the final say on monetary policy, the governor is guided by a 'technical advisory committee' in a consultative process. The proposal has drawn criticism as some perceive it as an indirect means of curtailing the powers of the RBI governor and giving effect to a more loose monetary policy premised on a lower interest rate regime. While lower interest rates would result in higher credit offtake from banks and financial institutions, it may also lead to higher inflation rates (particularly in the absence of structural reform). The monetary policy committee proposal also deviates from the recommendations of the Financial Sector Legislative Reforms Commission, which had recommended that the RBI governor retain a "veto" power. There is need for accord on this as foreign investors, rating agencies and other India watchers are unlikely to appreciate any steps that appear to curtail the RBI's inherent regulatory functions, particularly in light of the stature of the RBI and its current governor. Fortunately, a healthy consensus appears to be forming around having a monetary policy committee with a majority of members appointed by the RBI or with the RBI governor having a casting vote – a compromise that may be acceptable to both the government and the RBI.
The overarching theme of the monsoon session so far has been the government taking two steps forward and one step back. A case in point would be the issuance of a press note providing for composite foreign investment caps, thus simplifying a process that became more complicated each year, and then issuing the so called "porn ban". Using the term "bumbling" to describe the current functioning of the government would be harsh but the government clearly has to get its internal machinery in order so that the various arms of the government actually manage to pull forward and not in different directions. This would also be a good time for the government to note that its supporters amongst the business community are gradually becoming less patient and are indeed clamouring for reform at a visible, if not a scorching, pace.
For further information, please contact:
Sawant Singh, Partner, Phoenix Legal
sawant.singh@phoenixlegal.in
