Modi's Finding It Tough to Get Work Done in India's Parliament

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Arun Jaitley And Narendra Modi
India's finance minister Arun Jaitley speaks to India's prime minister Narendra Modi. Photographer: Kuni Takahashi/Bloomberg

Prime Minister Narendra Modi’s plan to reinvigorate India’s economy has hit a roadblock, and it may be months before he regains momentum.

The parliament session that ended Thursday was the least productive since Modi swept to power in May 2014. The failure to pass a goods-and-services tax -- one of India’s biggest reforms since the 1990s -- now puts his April 2016 deadline in jeopardy.

The impasse is giving investors another reason to exit India as China’s yuan devaluation roils financial markets ahead of an expected rise in U.S. interest rates. India’s rupee this week fell to the lowest level since 2013, weakening along with currencies across emerging markets.

Disappointment over the pace of reforms has grown since Modi’s party won a majority in parliament’s lower house. His inability to push economic proposals through the opposition-controlled upper house has eroded enthusiasm among investors who saw his victory as a turning point for India.

“This is going to be a bit of a start-stop process, with two steps forward and one step back,” said Vishnu Varathan, a Singapore-based economist at Mizuho Bank Ltd, adding that it may take a few years to pass key bills. “The challenge in the interim is to not lose more political capital.”

Opposition lawmakers shouted and banged on tables on Wednesday to prevent members of Modi’s administration from speaking, forcing the upper house to adjourn before a vote on the goods-and-services tax. Similar scenes have played out daily over the past three weeks.

Next Session

Modi has few options to get things back on track. While both houses were indefinitely adjourned on Thursday, the government kept the option option to recall lawmakers at a later date. This means it could still make another push to pass the goods-and-services tax in this session.

Finance Minister Arun Jaitley expressed confidence on Thursday that the government will meet the deadline to implement the tax reform even while bashing the opposition for disrupting proceedings.

If the session is prorogued, Modi’s party must wait until the next one scheduled to begin in late November. In that case it will be “extremely difficult” to meet the April 2016 deadline, Jaitley said. He ruled out calling a joint session of parliament because the goods-and-services tax bill requires amendments to the constitution.

Cricket Boss

Modi’s other major reforms -- making it easier to acquire land for industrial projects and granting companies more flexibility in hiring and firing workers -- are also stalled. Some reports even suggest Modi will drop key elements of the land bill, a move that would water down its potential impact.

A lack of reforms may derail India’s growth prospects, Moody’s Investors Service said last month. Central bank Governor Raghuram Rajan last week said that passage of key bills would “send a strong message to the outside that India is still on the move.”

Modi’s opponents spent most of Wednesday calling for Foreign Minister Sushma Swaraj to resign for helping the former head of India’s top cricket league procure British travel papers even though he faces tax evasion allegations. She refused to step down while defending herself.

“Session after session, they are using one pretext or the other to stall it,”Jaitley told reporters this week, referring to the opposition. “The Congress party doesn’t want the economy to grow. They must candidly say so.”

In some ways, Modi is getting a taste of his own medicine. His Bharatiya Janata Party used similar tactics in parliament to repeatedly block the goods-and-services tax while it was in opposition, leading to an economic downturn that allowed it to defeat Congress in last year’s election.

To win the upper house, the BJP must win a series of state elections over the next year. Even then, it probably won’t control the body until 2017 at the earliest.

“The conflict within the democratic system is steadily increasing,” said Prem Shankar Jha, an author in New Delhi who has written about Indian politics for decades. “Both sides are now cutting the throat of India.”

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