Coalition may open space for more reforms: CEA

Coalition politics and a weakened mandate could present significant reform challenges.

As the NDA government prepares to take oath for its third consecutive term, questions arise regarding its capacity for reform amid a reduced mandate. Fitch Ratings indicated that while broad policy continuity is expected, the coalition politics and a weakened mandate could present significant reform challenges. However, Chief Economic Advisor V Anantha Nageswaran holds a contrasting view.

"This actually makes some of the difficult reforms more feasible incrementally because it opens up space for dialogue," Nageswaran told The Indian Express.

In its previous two terms, the NDA government struggled with major reforms due to a lack of consensus, often deferring to state governments. This was evident with land reforms during its first term and labour reforms in its second term, which stalled due to insufficient state-level support. Similarly, farm reforms might have seen different outcomes had states been engaged earlier.

Despite expected continuance in capital expenditure and infrastructure projects, other reforms may progress slowly. Moody’s noted policy continuity, particularly in infrastructure spending and domestic manufacturing boosts, supporting growth. Fitch Ratings echoed this, emphasising continued focus on infrastructure capex, business environment improvements, and gradual fiscal consolidation, though coalition politics might complicate ambitious reforms.

Effective land-use policy changes by states could ease land acquisition for industry and infrastructure, promoting manufacturing and growth.

The Centre has faced challenges in implementing labour reforms despite passing legislation in Parliament, with labour being a concurrent subject requiring both Centre and state laws. Parliament cleared four labour codes in 2019 and 2020, and while the Centre published draft rules, some states have yet to complete the process. Internal discussions in 2022 considered staggered implementation of two codes, but these plans did not materialise.

Farm reforms introduced during the COVID-19 pandemic also faced significant resistance. The government issued ordinances in June 2020, leading to protests, particularly in Punjab. The farm laws were passed swiftly in Parliament but faced widespread opposition from farmers, leading to a year-long protest and their eventual repeal in November 2021.

As the NDA government steps into its third term with a reduced mandate, the dynamics of coalition politics and the necessity for dialogue may shape the trajectory of India's reform landscape.