Multi-partisanship for reforms can help India unlock stalled growth

Business Standard

a day ago

Following the global multi-party outreach to articulate India's response to Pakistan's state-sponsored terrorism, the Prime Minister spoke of institutionalising the idea. The idea of multi-partisanship is undoubtedly inspired. It is a pity no one has thought of applying the concept in other critical areas of governance. For instance, a multi-party consensus on economic policy would be splendid, especially since much of stalled next-gen reform requires buy-in from state governments ruled by parties in opposition to the ruling coalition at the Centre.
Right now, a majority in Parliament thanks to its allies means that the ruling dispensation does not need to take anyone in the Opposition on board to fulfil its political agenda. With Operation Sindoor, Narendra Modi was pushing at an open door when it came to multi-partisanship. Getting a consensus on economic reform is a different matter. It requires negotiating contradictory political calculations. It may not always work but the consequences of a lack of political consensus has proven a significant hurdle for private investment in the kind of job-creating greenfield manufacturing projects that India urgently seeks.
Consider land acquisition. All private companies struggle to acquire land at scale because of the stiff stipulation in the Land Acquisition Act requiring 80 per cent prior consent from affected families (70 per cent in the case of private-public partnership projects) plus a social impact study. As a workaround, corporations employ land aggregators as intermediaries to pool in parcels of land, but the process is cumbersome, expensive, and ultimately self-defeating. Yet, difficulties in acquiring land have been a key reason India has struggled to make a success of its nearly two-decade-old Special Economic Zones policy, which was supposed to provide the rocket fuel for India's economic growth a la China. Instead, the government has successively scaled down rules governing minimum SEZ size, a change that has not made an appreciable difference to investor interest.
When the Modi government first came to power, it briskly sought to underline its pro-business credentials by passing an ordinance easing the land acquisition pre-conditions in some cases and doing away with the social impact study. The amendments were passed in the Lok Sabha but stalled in the Rajya Sabha, where the ruling party did not have a majority. Though the ordinance was re-promulgated three times, it was allowed to lapse. The political furore that chipped away at the Bharatiya Janata Party's 'common man' positioning has not encouraged the party to reintroduce it in its second or third terms.
Ructions over land acquisition for private investment burst into contemporary political consciousness in the 2000s in West Bengal and reflects how competing political interests can stall progress. An attempt at consensus between the belatedly reforming Left Front government in West Bengal and Mamata Banerjee-led Trinamool Congress over the Tata Nano plant in Singur would have been a sensible route. Had the plant come up, it would have been a game changer for a declining state. But Ms Banerjee's decision to co-opt a traditional Left Front bastion — peasants and cultivators, land losers in the Singur project — weakened the prospect of negotiating with a regime backing big business. The same impulse encouraged her to back land-losing protesters opposing a chemical hub proposed by the Left Front government in Nandigram and Nayachar.
Land loser championship brought Ms Banerjee to power in the state but this recent history has not inspired business and industry. The thing is, this situation need not be zero-sum. Politicians have to legitimately consider the welfare of land losers in large projects even if the compensation is generous. What will they do with the money? Where will they go? At the same time, discouraging investment for lack of land is hardly helpful to a state where quality jobs are scarce. And yet we have the experience in China of balancing land-loser apprehensions with the famed Township and Village Enterprises that came up alongside mammoth factories. Instead of the confrontational approach of ordinances, a multi-party consensus exploring such a solution on a national scale could well have positioned India as the first choice for global investors' China Plus One strategies — ahead of Vietnam, Mexico or Indonesia.
Labour reforms, another obstacle for large investors, has had a marginally better fate. In 2019-20, Parliament enacted four labour codes to streamline and consolidate labour laws to improve its 'ease of doing business' ranking. Though the World Bank discontinued the ranking in 2021, the government persisted with its efforts to persuade states to enact the laws. The fact that the BJP or its allies are in power in 21 of the country's states and Union Territories has played a role in expanding the adoption of these codes but the results are variable.
For instance, according to research by Business Standard, 20 states/Union Territories have adopted the higher thresholds for hiring and firing and 25 have committed to fixed term employment and 31 will relax laws to permit women to work at night.
So land and labour, the two key factors of production, remain sticking points in the reforms portfolio as do power pricing and the bewildering variety of local approvals that investors need before setting up a unit. Picking the brains of the best political leaders in the business across party lines in unravelling these Gordian knots in the ease of doing business would be better than packing them off on taxpayer-funded foreign trips where the outcomes are yet unclear.