NDA Wins Third Term but Requires Coalition

Context:

The NDA has won a historic third term at the Centre, but the BJP fell short of the 272-seat majority, necessitating a coalition government. Previously, the BJP’s majority in the last two Lok Sabhas marked the first time since economic reforms began in 1991 that a single party had a majority mandate, which was expected to positively impact India’s economic reform trajectory

Relevance:

GS II: Polity and Governance

Dimensions of the Article:

1. Coalition Governments and Weak Economic Reforms Since 1991
2. Can a Coalition Government Derail India’s Economic Reforms Trajectory?
3. Notable Reforms Brought by Previous Coalition Governments

Coalition Governments and Weak Economic Reforms Since 1991

Historical Context

• Shift in Economy: Since 1991, India’s transition from a planned to an open economy has seen all governments being coalition-based, with no single party achieving the majority mark of 272.
• Consensus for Weak Reforms: According to Montek Singh Ahluwalia, former Deputy Chairman of the Planning Commission, this led to a “strong consensus for weak reforms.”
• Divergence on Reforms: Although there was general agreement on the need for economic reforms, coalition parties often diverged on specifics, resulting in diluted measures.

Can a Coalition Government Derail India’s Economic Reforms Trajectory?

Diverse Interests and Challenges

• Historical Challenges: Coalition governments in India have historically faced challenges in implementing strong economic reforms due to differing priorities among coalition partners.
• Varied Agendas: Coalition partners often have varied political and economic agendas, leading to compromises and diluted reforms.
• Slowing Reforms: This can slow down or alter the trajectory of economic reforms.

Consensus and Instability

• Broader Consensus: While coalition governments can foster broader consensus, the need to appease various factions might lead to weaker reform measures.
• Complex Issues: Achieving a unified stance on complex economic issues becomes difficult.
• Policy Instability: Frequent changes in coalition partners or internal disagreements can lead to policy instability, affecting investor confidence and long-term economic planning.

Recent Efforts and Challenges

• Modi Government: The past decade under PM Narendra Modi aimed to resolve coalition government weaknesses, ensuring policy stability and boosting investor confidence.
• Significant Reforms: Reforms like the Goods and Services Tax (GST) and the Insolvency and Bankruptcy Code were introduced.
• Unachieved Goals: Despite these efforts, certain goals were not fully achieved, such as failing to reform land acquisition and repealing farm reforms after widespread protests.
• Economic Uncertainty: The demonetization announcement also caused significant economic uncertainty.

Conclusion

• Not a General Truth: The statement that coalition governments will necessarily derail India’s economic reforms trajectory is not generally true.
• Historical Achievements: Coalition governments since 1991 have undertaken some of the boldest and most visionary reforms, laying the foundation for India’s resurgence.
• Mitigating Risks: While coalition governments can pose challenges to the economic reform trajectory, effective leadership, clear communication, and strategic compromises can mitigate these risks and maintain reform momentum.

Notable Reforms Brought by Previous Coalition Governments

P V Narasimha Rao Government: Economic Liberalization

• Economic Reforms: Initiated major economic reforms, discarding centralized planning, and opening the Indian economy to global competition by removing the license-permit raj.
• Global Integration: India became a member of the World Trade Organisation during this period.

Deve Gowda Government: The “Dream Budget”

• Tax Reforms: Finance Minister P Chidambaram introduced the “dream budget,” which cut tax rates for personal income tax, corporate taxes, and customs duties, fostering trust among Indian taxpayers.

Atal Bihari Vajpayee Government: Fiscal and Infrastructure Reforms

• Fiscal Responsibility: Implemented the Fiscal Responsibility & Budget Management (FRBM) law to limit government borrowing and promote fiscal discipline.
• Disinvestment and Infrastructure: Advanced the disinvestment of loss-making PSUs and boosted rural infrastructure through the PM Gram Sadak Yojana.
• Information Technology Act: The 2000 Act laid the foundation for India’s thriving e-commerce sector.

Manmohan Singh Government: Rights-Based Reforms

• Education Reforms: Built on the Vajpayee-era Sarva Shiksha Abhiyan by enacting the Right to Education Act.
• Transparency and Welfare: Introduced key reforms such as the Right to Information Act, the Right to Food, and the Mahatma Gandhi National Rural Employment Guarantee Act (MG-NREGA).
• Economic and Technological Advances: Deregulated fuel prices, initiated direct benefit transfers, and worked on Aadhaar and GST implementation.

-Source: Indian Express