For a political consensus on reforms
The Hindu Business Line,
September 26, 2014
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By Pradeep S Mehta
A pact between major parties
would end the prevailing climate of adhocism and policy
uncertainty
Our polity is quixotic. One
party proposes a reform when in government and then opposes
it when in opposition. When in opposition, it flags an
excuse that it does not agree with some provisions. The
recent amendment Bill on expanding the foreigners’ stake
from 26 per cent to 49 per cent in the insurance sector was
opposed by the Congress party when brought forward by the
National Democratic Alliance.
This has now been referred to a Rajya Sabha Select Committee
which will deliberate the matter, and the amendment may pass
muster in few months’ time. But we would have lost some
crucial time to advance a reform which is critical for
infrastructure investment. Should the political parties not
sit down and sign a ‘Pact for India’ on reforms which can
take India forward, rather than just indulge in
politicking.Prime Minister Narendra Modi has said ever so
often that he will work with all the 120 crore Indians, and
surely that includes the opposition parties.
Likewise, the BJP opposes FDI in multi brand retail, while a
policy has been adopted by the UPA government with an
opt-out provision for states. Since the policy did not
require any legislative changes it went through, but only a
handful of states adopted it.
In 2002, the then NDA government had proposed the same
policy but it was opposed by the Congress, which called it
anti-national. In any event, no multinational has entered
due to the policy uncertainty. However, small retailers can
be ring fenced by proper zoning laws and also be tied into
the working of big retail chains so that their existence is
safe.
In his Budget speech, the finance minister stated that the
policy of NDA government was to promote foreign investment
selectively in sectors where it would help the larger
interest of the economy.
This includes increasing the composite cap of foreign
exchange in the insurance and defence sectors to 49 per cent
from the current level of 26 per cent, with full Indian
management and control, through the FIPB (foreign investment
promotion board) route; and relaxing the conditions for
foreign investment in the construction and manufacturing
sectors.
Framing the right FDI policy, not just in insurance,
requires a holistic and strategic approach, rather than in
an adhoc one.
FDI in insurance
Higher foreign investment in insurance sector is
expected to bring nearly ₹25,000 crore additional equity. It
is expected to increase competition and help insurance
companies tap under-insured markets through better
infrastructure and more manpower. A robust insurance market
can mobilise crucial long-term funds for investment in
infrastructure and spur growth. However, the opposition
parties are concerned that government has introduced several
changes to the original Bill, and hence it has been referred
to a Select Committee.
The Government has a majority in the Lok Sabha but not in
the upper House. Faced with an uncooperative opposition, the
Government may find it difficult to get the amendment Bill
passed, even after the Select Committee’s deliberations.
It must be noted here that legislative agenda of the NDA
government may not be limited to allowing foreign
investment.
Other reforms
The Government is expected to push through other key
legislations such as relaxation of labour and land laws,
reforms in direct and indirect taxation (such as adoption of
GST), modifications in coal and financial sector regulation,
and reforms in infrastructure and manufacturing. This would
require constant negotiations and discussions with the
opposition, and is expected to take up substantial time of
the Government representatives.
In such a scenario, when the Government is faced with the
prospect of repeated engagement with the opposition, a
piecemeal approach with respect to legislative reforms is
best avoided.
The Government should propose a package of legislative
reforms which it intends to introduce in the legislature,
and must sit with major opposition parties (such as the BJD,
AIADMK, Congress and the TMC) to sort out the impending
issues within a time-bound manner, to ensure safe passage of
the Bills in both the houses. The political parties must
realise that political non-cooperation during the last
decade has cost the country dear. It is high time that the
parties rise over their narrow political agendas and work in
the national interest.
The Government must welcome valid suggestions and concerns
of the opposition, and the parties must work together to
restart the growth process. Here, it would be useful to
learn from the reform approach of Mexico, where the ruling
and opposition parties have come together to introduce
critical reforms. The four major political parties in Mexico
have signed a ‘Pact for Mexico’ committing consensual
support to vital policies.
The negotiations were initiated by the newly elected young
President of Mexico, Enrique Pena Nieto. The pact has
brought together the ruling centre-left Institutional
Revolutionary Party and the three principal opposition
parties; the leftist PRD party, the conservative PAN and the
Green Party, which joined the pact in January.
The political parties came together for the pact after the
realisation that political polarisation had weakened the
country alarmingly, especially in the last decade. The
95-point agenda of the pact ranges from tax overhaul to
barring junk food in schools.
The pact has already helped in passing six major reforms in
the last 12 months: (1) reform of the educational system,
(2) legal reform, (3) a telecommunications law that limits
the quasi-monopolistic powers of the companies (4) a tax
reform increasing the tax for more social spending, (5)
electoral reform and, (6) the energy reform.
Every one of the reforms was ferociously opposed by the
vested interests, unions and ideological warriors. Mexico
City was paralysed for many weeks by protesters over the
last year. But the Government firmly stood its ground and
carried the reforms through.
The Narendra Modi-led government must take a cue from Mexico
by working with the opposition intelligently, ensuring that
reforms are adopted and implemented.
The writer is Secretary General,
CUTS International
This news can
also be viewed at: http://www.thehindubusinessline.com/
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