Wait Gets Longer for India Investors Wanting Modi Overhaul

The wait just got longer for investors who expected sweeping moves to bolster India’s economy after Prime Minister Narendra Modi’s landslide election win.

Lawmakers failed to vote on a six-year-old bill that would allow more foreign investment in the insurance sector before a monthlong parliament session ended yesterday. Now it’ll have to wait until at least the next session in February.

Seven months after Modi’s party became the first in three decades to win a lower-house majority, he’s struggled to use that advantage to pass legislation that stalled for years under his predecessor. Further delays risk damping Modi’s image as a reformer, which has helped make India’s benchmark stock index one of the world’s best performers this year.

“There was hope that with a strong majority in the lower house, the Modi government would be able to be more productive in terms of lawmaking,” said Dariusz Kowalczyk, an economist at Credit Agricole CIB in Hong Kong. “We are risking gradual disappointment among global investors regarding what is possible for India.”

When the session began last month, analysts anticipated progress on a national goods and services tax, a plan for auctioning coal mines and raising the cap on overseas investment in insurance to 49 percent from 26 percent. The GST bill was just introduced four days ago, while only the lower house approved the coal legislation.

Stalled Development

The introduction of key bills served as “clear pointers” of Modi’s intention to overhaul the economy, Parliamentary Affairs Minister Venkaiah Naidu said yesterday.

The opposition’s tactics were “an effort to stall this government’s development” and constrain its options in the next fiscal budget due in February, Naidu told reporters.

Modi’s Bharatiya Janata Party, which controls 52 percent of seats in the lower house, holds only 18 percent of the 245-member upper house. Since it’s improbable Modi will be able to control the upper house before 2018, he needs to find alternative ways to get bills passed.

The government is considering approving the insurance bill through an executive order known as an “ordinance,” deputy Finance Minister Jayant Sinha told the Press Trust of India news agency. The measure failed to be called to a vote yesterday because of “political obstructionism” caused by the opposition in the upper house, he said.

Distracted Government

Sonia Gandhi’s opposition Congress Party tied up both houses of parliament for more than a week over demands that Modi address a plan by the Rashtriya Swayamsevak Sangh, a BJP-linked Hindu group, to convert more than 2,000 Muslims and Christians on Christmas day.

The BJP-controlled lower house was adjourned around noon yesterday as opposition lawmakers chanted “Stop breaking the country, Modi must answer.” The upper house followed suit a few hours later.

The upper house functioned for about 59 percent of its scheduled time in this session compared with 98 percent for the lower house, according to PRS Legislative Research, a group that tracks India’s parliament. Both spent about a third of that time discussing legislation.

The rupee weakened 2.1 percent in December and the S&P BSE Sensex index fell 4.3 percent, heading for its biggest monthly loss since February 2013, as foreigners pulled more than $1 billion from local shares in the 10 days through Dec. 22.

Modi’s government is coming to grips with the complications of lawmaking in the world’s largest democracy, said C. Uday Bhaskar, a distinguished fellow with the Delhi-based Society for Policy Studies.

“I’m afraid there’s disappointment that this government at the end of the year hasn’t been able to deliver, especially in parliament,” Bhaskar said. “They seem distracted by a number of issues that have nothing to do with good governance. They’ve really spent most of their time firefighting.”

No Miracles

Outside of parliament, Modi has made some progress since his election win in May. He’s moved toward more market-based energy pricing, sought to make it easier to do business, promoted a shift toward manufacturing and started campaigns to clean up the environment.

While political dysfunction may disrupt business plans, most investors are used to seeing delays in India, said Atsi Sheth, senior vice president in Moody’s Investors Service’s sovereign risk group.

“Anybody that is a real investor in India is sort of familiar with the political economy,” she said in an interview with BTV India. “Nobody expects miracles.”

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