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Govt’s reform push stalling; why it spells bad news for mkt

The government’s reform push late last year, when it passed ordinances to create temporary legislation relating in four areas — increasing FDI in insurance, facilitating coal auctions, creating a framework for mineral mining and amending the land acquisition law – appears to have gotten it in trouble.

An executive order, or an ordinance, is a temporary law created by the President at the behest of the government when Parliament is on break and when there is an urgency to create one. But governments have frequently used the route to bypass the Parliament if it thinks it will not succeed there.

But ordinances lapse after a few months (unless they are repeatedly repromulgated) and governments have to come back to Parliament to turn them into permanent legislation.

The bill that has “painted the government into a corner”, according to The Hindu chairman N Ram, is the land acquisition act, which he says, by seeking to make key changes in the earlier legislation, it has ensured it will not pass muster in the Rajya Sabha.

In a bid to speed up stalled projects, the Narendra Modi government’s amendment has attempted to remove the clause which requires consent of landowners as well as the need for an impact study for certain types of projects, as was required by the previous government’s version of the law.

But the move has united opposition parties, and even alienated the BJP’s own allies, and with the ruling alliance lacking a majority in the Rajya Sabha (where members are elected depending on parties’ strength in state governments), the government’s “reform push” has clearly stalled. Critics have labeled the government’s attempt as ‘anti-farmer’.

“By pushing through an important bill through the ordinance route gave the appearance that the government was being arrogant [despite lacking numbers in the upper house],” CNBC Awaaz Sanjay Pugalia says.

“Such a bill required a lot of consensus building with opposition parties and various state chief ministers. When parties rally on the plank of being pro-poor, they become very strong,” he adds.

According to Pugalia, the government could still utilize the rarely-used resort of calling a joint session of both houses (where the ruling alliance has a whisker of a majority) if the bill is rejected in Rajya Sabha but such a move would further deepen the divide between the BJP and others in the future.

“The manner in which the government has handled this issue speaks poorly of its strategy,” says CNBC-TV18 managing editor Shereen Bhan.

Even in Parliamentary debates, the BJP has not been able to put up a good defence of why the bill is not anti-poor, especially in the wake of the fact that BJP leaders supported the UPA act in 2013.

The latest logjam in Parliament has affected other crucial legislations as well with Rajya Sabha insisting on sending the coal auction bill as well as the MMDR bill (which proposes to push through a similar auction mechanism for other minerals as well) to a select committee.

This puts a question over whether the bills will be passed in the Budget session.

In a minor respite, Rajya Sabha has reportedly agreed to take up the insurance bill for voting but according to Bhan, this delay could also bog down the passage of the crucial goods and sales tax (GST) bill.

The government aims to introduce GST from April 1 next year but much would hinge on whether the government can push through a Constitutional Amendment Bill in this Budget session. “After all, all state assemblies will need to pass the bill in their respective assemblies,” Bhan points out.

All this means, says CNBC-TV18’s Senthil Chengalvarayan, that given the lack of progress on crucial reforms, the “Modi rally” could turn into a secular run into a cyclical rally.

And that could spell bad news for the market that has gone largely only one way – up — on hope this government would bring in measures that will kickstart the economic cycle.

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