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( Bloomberg) Prime Minister Narendra Modi’s plan to reinvigorate India’s economy has hit a roadblock, and it may be months before he regains momentum.
Barring some last-minute heroics, the parliamentary session scheduled to end on Thursday will be the least productive since Modi swept to power in May 2014. Failure to pass a goods-and-services tax -- one of India’s biggest reforms since the 1990s - - would put his April 2016 deadline in jeopardy.The impasse is giving investors another reason to exit India as China’s yuan devaluation roils financial markets ahead of an expected rise in U.S. interest rates. India’s rupee fell to the lowest level since 2013 on Wednesday, weakening along with currencies across emerging markets.
Disappointment over the pace of reforms has grown since Modi’s party won a majority in parliament’s lower house. His inability to push economic proposals through the opposition-controlled upper house has eroded enthusiasm among investors who saw his victory as a turning point for India.
“This is going to be a bit of a start-stop process, with two steps forward and one step back,” said Vishnu Varathan, a Singapore-based economist at Mizuho Bank Ltd, adding that it may take a few years to pass key bills. “The challenge in the interim is to not lose more political capital.”
Opposition lawmakers shouted and banged on tables on Wednesday to prevent members of Modi’s administration from speaking, forcing the upper house to adjourn before a vote on the goods-and-services tax. Similar scenes have played out daily over the past three weeks.
Next Session
Unless this session is extended on Thursday, Modi has few options to get things back on track. The next one is scheduled to begin in late November. Because the goods-and-services tax requires a constitutional amendment, he can’t call a special session before then to push it through.
Even a rejection of the goods-and-services tax would help Modi. In that case, he can call a joint session of parliament where he holds the numbers to pass the bill -- a tactic that’s rarely used but would send a strong signal to investors.
His other major reforms -- making it easier to acquire land for industrial projects and granting companies more flexibility in hiring and firing workers -- are also stalled. Some reports even suggest Modi will drop key elements of the land bill, a move that would water down its potential impact.
A lack of reforms may derail India’s growth prospects, Moody’s Investors Service said last month. Central bank Governor Raghuram Rajan last week said that passage of key bills would “send a strong message to the outside that India is still on the move.”
Cricket Boss
Modi’s opponents spent most of Wednesday calling for Foreign Minister Sushma Swaraj to resign for helping the former head of India’s top cricket league procure British travel papers even though he faces tax evasion allegations. She refused to step down while defending herself.
“Session after session, they are using one pretext or the other to stall it,” Finance Minister Arun Jaitley told reporters, referring to opposition lawmakers. “The Congress party doesn’t want the economy to grow. They must candidly say so.”
In some ways, Modi is getting a taste of his own medicine. His Bharatiya Janata Partyused similar tactics in parliament to repeatedly block the goods-and-services tax while it was in opposition, leading to an economic downturn that allowed it to defeat Congress in last year’s election.
To win the upper house, the BJP must win a series of state elections over the next year. Even then, it probably won’t control the body until 2017 at the earliest.
“The conflict within the democratic system is steadily increasing,” said Prem Shankar Jha, an author in New Delhi who has written about Indian politics for decades. “Both sides are now cutting the throat of India.”
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