What the Haryana, Maharashtra victories mean: Modi can now speed up reforms

The BJP’s terrific performance in Haryana and its emergence as the strongest party of Maharashtra is good news for economic reform. It is now time to push ahead with Plan A - a bolder version of economic reforms than what would have been possible if the BJP had not fared so well.

Almost as if sensing the coming victory, the Narendra Modi government recently announced the launch of labour reforms, and, yesterday (18 October) it announced diesel price deregulation and a moderate hike in gas prices. LPG subsidies will gradually shift to direct cash transfers, eliminating the possibility of benami users.

The fact that the BJP did not win a majority on its own in Maharashtra could also be a seen as a plus for reform, for this means the party will have to woo the Shiv Sena to form a government in the state. And with the Sena come 18 MPs in parliament, including some in the Rajya Sabha.

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The fact is Modi has a small window - of possibly six to eight months - to push through his big-ticket legislative agenda after which major elections will start looming again. Bihar is due by end-2015, and after than UP, West Bengal and Tamil Nadu a year later. To be sure, elections are due to Jammu & Kashmir and Jharkhand over the next two months, but the results here will not impact the national mood. What will impact is Delhi, where the assembly is in suspended animation. The BJP has to win Delhi to ensure that the reforms momentum is not lost due to political loss or poor performance. But Delhi now looks distinctly easier after wrapping up Haryana, and with the Aam Aadmi Party in some degree of decay.

Some time back, I had indicated what a Plan A for Modi should look like. Plan A is bolder version of reform than what would have been possible if the party had fared poorly in these two states.

Plan A would include major legislative changes to the growth-retarding Land Acquisition Act, the flawed Right to Education Act, the Food Security Act which few states seem to want, the MGNREGA work guarantee scheme, and jobs-inhibiting labour laws in order to move the economy to a higher growth path after a year or two. The Coal Mines Nationalisation Act also needs to be repealed, and the oil sector needs to be deregulated. The goods and services tax (GST) needs to be prioritised.

The idea should be to get the Lok Sabha to approve them, and then see how much consensus can be built in the Rajya Sabha, where the government is in a very weak position. The strategy should be to either get these bills passed by doing deals with regional parties, or by getting the bills defeated and bringing them quickly to a joint session of parliament for final clearance. Modi should have a very busy legislative agenda for the winter session.

The high-road plan should also include a very business- and market-friendly Union budget for 2015-16, complete with partial or full privatisation of some banks, and parts of the railways and public sector undertakings. Modi must plan for legislative support to ensure this, where needed. If this is done, the government can afford to cut tax rates and still reap higher revenues. This is what will lead to higher growth.

Plan A should also abolish all centrally-funded schemes and make the money currently available conditionally to states to be converted strings-free grants.

States will rejoice. Only the jholawallas and NGOs will be frothing at the mouth - as they already are about the government’s plans to modify the MGNREGA scheme.

Some parts of Plan A are already underway. The labour ministry has put out a draft law to exempt small factories (those employing less than 40 persons) from 14 major labour laws, and three more laws are likely to be repealed altogether. The idea is replace all of them for small factories with a new law - Small Factories (Regulation of Employment and Conditions of Services) Bill - and make compliance with the provisions easier by taking them online. Small factories are the biggest employment generators in India and this labour law reform is vital to end the phase of jobless growth we saw under UPA.

Assuming these laws are pushed through the Lok Sabha, they will face a Rajya Sabha roadblock since the NDA is far short of a majority in the upper house. This means most of these bills will probably be sent to select committees, after which they will be modified or defeated. This is when the NDA will need all the numbers. With 330 MPs in the Lok Sabha, and around 65 in the Rajya Sabha, the NDA will just about have enough power to push through these bills in a joint sitting of parliament. In this endeavour, the BJP will need the Sena as much as its other allies.

This may be easier now that the BJP has won Haryana and Maharashtra - and the resultant political confidence to push bolder reforms.

Plan A beckons Modi.