Rajya Sabha

Wheels of Rajya Saba May Not Turn As Fast As Morgan Stanley Expects Them To

parliament

One of the things that I have written about in the past is the fact that the Bhartiya Janata Party(BJP) led National Democratic Alliance(NDA) government is likely to continue to be in a minority in the Rajya Sabha until 2019. The next Lok Sabha elections are due in 2019.

Even if one were to be very optimistic, the NDA would touch around 100 seats in the Rajya Sabha by 2019. Why is that? Unlike the Lok Sabha, the Rajya Sabha is not elected all at once. A certain section of the members keeps retiring, elections are held for these seats and new members are elected. Hence, the composition of the Rajya Sabha keeps changing gradually unlike that of the Lok Sabha, which changes all at once.

Given that NDA does not have numbers in the Rajya Sabha, it has not been able to get key legislation passed. In a recent research report titled GST, The Way Forward, analysts Sheela Rathi and Ridham Desai of Morgan Stanley, suggest that this is about to change and by July 2016, the government may be able to push through key economic legislation like the Goods and Services Tax (GST), through the Rajya Sabha.

So what is it that Rathi and Desai are seeing which others can’t. Before we get into this, it is important to understand how the composition of the Rajya Sabha will change in the months to come. Every two years around one-third of the total members of the Rajya Sabha retire and new ones are elected.

Between March and July 2016, 75 members will retire from the Rajya Sabha. New members will be elected. These members are elected indirectly through an electoral college consisting primarily of the elected members of the state legislative assemblies. So you and me, dear readers, elect the members of legislative assemblies (MLAs) who in turn elect the members of the Rajya Sabha.

After these elections, the numbers of seats the BJP led NDA has in Rajya Sabha will go up. As Akhilesh Tilotia(the author of The Making of India), Sanjeev Prasad and Sunita Baldawa of Kotak Institutional Equities, write in a research note titled Wheels of Rajya Sabha Turn Slowly: “[In July 2016] core NDA allies will have 68 Rajya Sabha MPs (currently 61), almost similar in number to what the INC is expected to have (65)…After this round of elections in the Rajya Sabha, the next large round of elections will be in April 2018 and by then the NDA government at the Center would have completed four years of its tenure. The government will continue to have a minority position in RS until late in its term.”

So, the NDA will have 68 members in the Rajya Sabha by July 2016. While this is better than the 61 members they currently have, it is too small in a house of 245. It also needs to be mentioned here that in order to get a Constitution Amendment Bill, like the GST, passed, the approval of two-thirds of the members of both the Rajya Sabha and the Lok Sabha is needed.

A joint sitting of both the houses of Parliament cannot be called in order to get a such a Bill passed, if the houses do not agree on the Bill. Article 368 of the Indian Constitution basically mandates that both the houses pass the Bill separately with a two-thirds majority.

Currently, the Rajya Sabha has 242 members instead of the sanctioned strength of 245. A two thirds majority would mean getting the support of 163 members. So how will NDA with 68 members in the Rajya Sabha get a constitutional amendment which needs the support of 163 members passed?

Rathi and Desai make a huge leap of faith here. As they write: “Currently, BJP and its allies have 60 seats in the Upper House, and, along with parties supporting GST, there are 97 votes in favour of the bill. This count increases to 110 by the end of July with the upcoming retirements…In the first scenario, all members participate in voting. The BJP and its allies see their seat membership increase to 110 from 97 seats. There are another 44 members that are currently supporting the bill. Supporting votes add up to 154. There are another nine who are neutral at this point and could swing either way. If the government can garner support from these members, then getting to the 163 vote mark becomes likely by July 2016.”

QED.

One of the parties which Rathi and Desai list as supporting the BJP on GST is AIADMK. The party currently has 12 members in the Rajya Sabha. The Kotak analysts expects the party to continue to have 12 members even after July 2016.

Further, the AIADMK is against the GST. As AIADMK leader A. Navaneethakrishnan said in November 2015: “The GST in its present form will have a huge impact on the fiscal autonomy of States and the revenue loss it is likely to cause to Tamil Nadu will be considerable.”

Also, the party’s main leader J Jayalalitha is known to be mercurial.

Rathi and Desai also list Samajwadi Party as one of the supporters of the GST Bill. The party currently has 15 seats in the Rajya Sabha. This is expected to rise to 19 by July 2016. Samajwadi Party is the biggest party in the Rajya Sabha after Congress and the BJP.

Does the Samajwadi Party actually support GST? As Akhilesh Yadav said in early December 2015: “Without thinking much, anyone is expressing support to GST Bill in the parliament. State would be at loss.”

The analysts also assume that the Peoples Democratic Party(PDP) of Kashmir is in the NDA camp when it comes to GST. If that was the case, why haven’t the BJP and the PDP been able to form a government in Jammu and Kashmir, after the death of the chief minister and PDP leader, Mufti Mohammed Sayeed.

Also, the state finance minister Haseeb Drabu has spoken against GST in the past. As he had said in May 2015: “Jammu and Kashmir is unlikely to implement GST regime as it compromises its special position…. J&K is the only state that has the authority to legislate on all taxes and this will go with the new GST regime.”

Given this, I really don’t know how Rathi and Desai have assumed that AIADMK, PDP and SP are supporting the NDA on GST. Also, the assumption here is that the Congress party will keep sitting and not do anything about the BJP led NDA trying to get other parties in favour of GST.

Further, the Morgan Stanley analysts write: “In the second scenario, the INC (i.e., 67 current Upper House members) abstains from voting, and then the government needs 123 votes. In this situation, the bill can even pass during the second part of the budget session, between April and May. By April, we think the BJP and parties supportive of the bill will have 107 seats. in Rajya Sabha; they need another 16 seats to get the votes in the favour of the bill, which are already available to them.”

This is a politically naïve assumption which has been made to arrive at the conclusion that the NDA will get the numbers to get the GST Bill passed. Why would the Congress party give a walkover to the NDA? Beats me.

Further, the report does not take into account the state assembly elections which are due to happen in April and May 2016. The counting for four assembly elections (Assam, West Bengal, Tamil Nadu and Assam) and one union territory election(Puducherry) will happen on May 19.

The results of these elections will also have an impact on whether political parties will continue to support the BJP in its bid to get the GST Bill passed in the Rajya Sabha. If the BJP performs well (i.e. it wins in Assam, does well in West Bengal and manages to open its account in Kerala) the hawa will be in its favour.

If it doesn’t do well, the hawa will go against it. In this scenario, many small political parties who are in the ‘supporting’ camp may decide to desert it. Even if the BJP does well, some parties might still want to stay away, in order to portray that they are not giving in, to the BJP. This is something that cannot be known in advance.

Once these factors are taken into account it is safe to say that there are way too many holes in Morgan Stanley’s prediction of the BJP led NDA being able to get the GST Bill passed in July 2016. It’s a nice story, but on the current evidence, it doesn’t seem plausible.

The column originally appeared in the Bangalore Mirror on March 9, 2016

Why has Narendra Modi changed his Mann Ki Baat on land acquisition


narendra_modi

In a column I had written for Firstpost on February 27, 2015, I had suggested that the prime minister Narendra Modi should use the platform of mann ki baat on All India Radio to explain to the people of this country why the Land Acquisition Act of 2013, needed changes.

Modi addressed the issue in the mann ki baat programme on March 22, 2015. He explained why the The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement (Amendment) Ordinance, 2014, which made changes to the Land Acquisition Act of 2013, was needed.

The Article 123 of the Constitution empowers the President to promulgate an ordinance if the Parliament is not in session, provided he is convinced that the situation demands so. Further, an ordinance is valid upto six weeks from the date on which the next session of the Parliament starts. After that it lapses. There is no upper limit to the number of times an ordinance can re-promulgated. The land acquisition ordinance issued by the Modi government has been re-promulgated thrice. It is valid up until today (i.e. August 31, 2015), when it will be allowed to lapse.

Modi made this announcement over the mann ki baat programme aired yesterday. As he said: “Tomorrow [August 31, 2015] the Land Bill will lapse and I have agreed to it. The government will not repromulgate [an] ordinance, but will include 13 points to reform the land acquisition law to benefit farmers.”
There has been much criticism of the Modi government, from those on the left, as well as those on the right. The jhollawallahs feel that the Modi government is kow-towing to the corporate crowd, which finances the Bhartiya Janata Party (not that it does not finance the Congress and other parties). Those on the right believe that it is not the job of the government to be acquiring land.

The issue is a little more complicated than that.  Land is not just needed by the private parties, it is also needed by the government for projects which are of national importance and which seek to improve the quality of life of the people of this country.

In a recent interview to The Indian Express, Mangu Singh, Managing Director of the Delhi Metro was asked how does the Delhi Metro manage land acquisition: “Fortunately, so far there hasn’t been any case where we require private land under the new Act (Land Acquisition, Rehabilitation and Resettlement Act, 2013), because we also believe it is almost impossible to acquire land under the new Act.”

In fact, this is something that even Jairam Ramesh, the brain behind the 2013 Land Acquisition Act also admits to. As he writes in Legislating for Justice—The Making of the 2013 Land Acquisition Law along with Muhammad Ali Khan: “The law was drafted with the intention to discourage land acquisition. It was drafted so that land acquisition would become a route of last resort.” In fact, for anyone who really wants to understand how complicated the process of land acquisition actually is under the 2013 Act, should read Ramesh and Khan’s book. It is not surprising that Singh of Delhi Metro believes that it is impossible to acquire land under the new Act. And he doesn’t work for a greedy corporate.

For a country which has nearly 13 million people entering the workforce every year and which has aspirations of “making things,” a law which discourages acquisition of land really cannot be the best way to move forward. No country has gone from being developing to being developed without the expansion and success of its manufacturing sector. And any manufacturing enterprise needs some land.

Further, the physical infrastructure in the country from roads to rail to ports are all creaking. Nearly 70 years after independence many villages in the country do not have access to electricity. All this needs land.

Another fundamental point that the jhollawallahs need to understand that nearly half of the country’s population is engaged in agriculture producing only around 18% of the country’s gross domestic product (GDP). While it is one thing romanticising agriculture, there is a fundamental problem here. There are many more people working in agriculture than required. This means that people needed to be moved out of agriculture. The situation gets even worse once you take into account the fact that most people who work on farms don’t totally depend on income from the farm. Only 17 percent of them survive entirely on money from their farm. So most farmers need to make ends meet by doing other odd jobs.

When Modi had addressed the country through the mann ki baat programme in March earlier this year, he had addressed this issue when he had said: ““In every household, the farmer wants only one son to stay in farming. But he wants other children to get out there and work because he knows that in order to run a household in this day and age different endeavours need to be made.” He then went to say that given this scenario what is wrong with the government acquiring land for building an industrial corridor and ensuring that jobs are created in the vicinity of where farmers live.

The point being that Modi had sold the land acquisition ordinance as something that would benefit the farmers. Now five months later, he has withdrawn the ordnance and even sold this move as being beneficial to farmers. How can that be possible?

The question is why has Modi taken a u-turn on the land acquisition issue after expending so much political capital behind it? A simple answer is the up-coming assembly election in Bihar. Other than the fact that Bihar sends 16 members to the Rajya Sabha, the election is also seen as a sort of a vote on Modi’s time in office since May 2014. It is being seen as a vote on whether people still believe in Modi’s promise of “acche din”.

The Bhartiya Janata Party and the National Democratic Alliance do not have the numbers required in the Rajya Sabha to push through key economic legislation. To get members in the Rajya Sabha, the BJP plus NDA first needs to win state assembly elections. The Rajya Sabha members are elected by the members of state assemblies.

The trouble is this focus on state assembly elections will continue for the next couple of years with elections in key states like West Bengal, Tamil Nadu and Uttar Pradesh coming up over the next few years. Hence, compromises on the economic reform front will keep happening.

Chances are the BJP plus NDA might win some of the assembly elections and end up with the numbers they require in the Rajya Sabha. But by then will there be enough time left for the Modi government to deliver even a small part of the “acche din” they had sold to the people of this country? For that to happen, the government needs to create conditions which lead to the creation of jobs. That isn’t happening at this point of time.

The three key economic reforms it was believed Modi would push through were: land reforms, labour reforms and the goods and services tax. Land reforms have been put on the back burner. Labour reforms never really took off (there have been some minor moves in Rajasthan and Madhya Pradesh, two states which barely have any industry). And so many compromises have been made in the bid to get it passed, that it is better that the Goods and Services Tax does not get passed in its current shape.

If they continue going the way they currently are, Modi and BJP might end up with a majority in the Rajya Sabha, only to lose to the 2019 Lok Sabha elections.  And that is something the country cannot afford. Because then the BJP will behave like the Congress is now.

(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek)

The column originally appeared on Firstpost on August 31, 2015

What Narendra Modi can learn from Narsimha Rao

narendra_modiVivek Kaul

Before PV Narsimha Rao took over as the prime minister of the country, the finances were in a bad shape. Under the previous regime, the foreign exchange reserves had fallen to a level which was enough to pay only for three weeks worth of essential imports. In this scenario India had to take an emergency loan of $2.2 billion from the IMF. This was done by offering 67 tonnes of gold as a collateral.
Given this, Rao realized that he needed a ‘technocrat’ as his finance minister. IG Patel, a former governor of the Reserve Bank of India(RBI) was approached first. Patel, had been the fourteenth governor of the RBI between 1977 and 1982. After retiring from the RBI he was the director of IIM Ahmedabad. Between 1984 and 1990 he was the director of the London School of Economics.
Patel refused Rao’s offer and instead recommended Manmohan Singh. Singh had taken over from Patel as the governor of the RBI. He had a three year tenure at the RBI. After that he took over as the deputy chairman of the planning commission. In March 1991, Singh was appointed as the Chairman of the University Grants Commission(UGC). And this is when Narsimha Rao came calling and on June 21, 1991, the day Rao took over as the prime minister of the country, Singh was appointed as the finance minister.
Singh with the firm backing of Rao unleashed a spate of economic reforms which unshackled the moribund Indian economy and placed it on a much better footing. What is interesting nonetheless is that the entire period of Rao’s rule was not reform oriented. The economic reforms happened in the first three years and after that election considerations for the next Lok Sabha took over. Hence, the last two budgets of Manmohan Singh were of the ‘populist’ nature.
There is a lesson in this for the current prime minister Narendra Modi. Modi is likely to have elections on his mind more than Rao for the simple reason that his party and his allies are outnumbered in the Rajya Sabha. And if he has to establish a majority in the upper house, he first needs governments of the Bhartiya Janata Party in states. The BJP currently has 43 MPs in the Rajya Sabha and the NDA 63 MPs. This makes it difficult for the government to enact any legislation unless it calls for a joint sitting of both the houses.
Hence, elections for state governments are very important for the Modi government.
In this scenario it might is quite possible that economic reforms and even simple administrative decisions for that matter, may take a back seat. A very good example of this is that Modi had to wait for elections in Maharasthra and Haryana to get over before the government could announce the decontrolling of the price of diesel.
The good news is that an election free window of almost 11 months is coming up. As analysts Abhay Laijawala and Abhishek Saraf of Deutsche Bank Market Research point out in a recent report titled Policy action to intensify “Following three state elections in December – Jharkhand, Jammu and Kashmir – there will be a near eleven month election free window, before Bihar state goes to the polls around November 2015.”
As can be seen from the accompanying table, after elections in the states of Jharkhand and Jammu and Kashmir are over, there is an election free window of close to 11 months. This table does not account for elections in Delhi, which also may happen soon.
The next big election is scheduled only in November 2015 in Bihar. The state has around 7.3% of the country’s Lok Sabha seats. It also elects 16 members to the Rajya Sabha. The Rajya Sabha has 241 seats in total. Hence, the Bihar election will be of significant importance. And it may not be possible to push economic reforms around the time elections happen in the state.
Hence, the time to push reforms is early next year, when the election free window starts. A good place to start with would be take the deregulation of diesel prices further, and start gradually increasing the price of cooking gas. Currently, the oil marketing companies make an under-recovery of Rs 393.50, every time they sell a cooking gas cylinder.
As was done in the case of diesel, prices can be increased gradually at the rate of Rs 10-20 per month. Currently, the oil marketing companies face an under-recovery of Rs 188 crore per day on the sale of cooking gas and kerosene. A part of this amount is reimbursed by the government. This leads to an increase in the expenditure of the government and hence, its fiscal deficit. Fiscal deficit is the difference between what a government earns and what it spends. An increase in price will also ensure that over a period of time the black marketing of domestic cooking gas to hotels will become unviable.
Also, over a period of time as the government is able to increase its numbers in the Rajya Sabha it needs to introduce land and labour reforms as well. As Laijawala and Saraf point out “Most of the reforms in India, since 1991, have been broadly focused towards product and capital markets. Reforms in factor markets, other than capital, principally land and labor, have been broadly left out by all political administrations since 1991. We believe that a long era of coalition governments may be the reason for this anomaly.”
Narendra Modi’s government is not held back by the coalition dharma, as almost all governments since 1996 have been. Hence, it is in a position to push through some real economic reforms on this front. These reforms are of great importance if Modi’s call of Make in India is to be take seriously.
Other than this, the Goods and Services Tax (GST) bill which has been in the works for a while, needs to be passed as well. The benefits of GST over the long term will be tremendous. “It has a very ambitious objective to wean away inefficiencies in India’s indirect tax value chain and ensure smoother movement of goods and services by converting India into a one common market, versus the current status where different states levy different types and rates of taxes, which introduces several inefficiencies,” write Laijawala and Saraf.
To conclude, Narendra Modi and his government need to make the best of the election free window that starts from January 2015 and try and make the best of it.

The article originally appeared on www.valueresearchonline.com on Nov 14, 2014

(Vivek Kaul is the author of the Easy Money trilogy. He can be reached at [email protected])