Tuesday, March 19, 2013

Political Uncertainty and Reform

   The conventional wisdom on economic reforms is that political uncertainty slows down reforms.  In my view the current political uncertainty, created by the withdrawal of DMK ministers from the Government could be used to accelerate genuine economic reform ( i.e. reform that restores growth and improves the efficiency of welfare delivery). 

    A BJP spokesperson has stated that the country is now in an election mode.  Earlier BJP leaders have asserted that Congress would be thrown out of office during the next election. If the BJP truly believes in these two statements, then it is in their interest to expedite reform legislation in Parliament and vote to pass it.  There are two reasons for it.  Firstly, these reforms are critical to India growing at 8% during the tenure of the next government (whether it is Congress led or BJP led) and second that Congress is likely to oppose the same reforms if the BJP in power, just as the BJP in opposition has opposed reforms that it introduced when it was in power.

    What about the Congress?  The Congress led UPA government has repeatedly stated that it has a majority and will remain in power till the due date of the 2014 election.  Despite the optimistic GDP projections in the Economic Survey and in the 2013-14 budget, growth is likely to be around 6% (+/- 0.5%) in terms of GDPFC and between 5% and 6% in terms of GDPMP.  Thus it is critically important for the Congress to end its current term with an uptrend in growth that is visible and credible, and this is only possible if there is another spurt of reforms over the next six months.

     The Parliamentary affairs minister therefore has two important tasks before him: Get the finance bill and budget approved in the Lok Sabha and work out with the BJP leadership the changes in reform legislation needed to get their immediate approval.  If the Congress leadership approves this course of action, Mr Kamal Nath seems to have (and has demonstrated ) the skills necessary to get this legislation through, with a little help from the Finance and other Ministers.

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