The Hindu Business Line, September 26, 2014

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

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