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India’s Economic Reform Agenda Hits Roadblock

FILE - Activists of India’s opposition Congress party beat a placard with portrait of Prime Minster Narendra Modi during a protest in Mumbai, India, Aug. 5, 2015.

The Indian government’s economic reform agenda has hit a roadblock as the country’s opposition continues to stall the passage of legislation through parliament. The political infighting is denting business confidence.

Opposition demands

For more than two weeks, parliament has been disrupted by opposition members who want Prime Minister Narendra Modi to fire his foreign minister and two state leaders accused of graft.

The government has refused, saying the charges are not proven.

The logjam in parliament has virtually ended the government’s hopes of passing critical legislation relating to tax reform and land acquisition in the ongoing session.

Tax reforms, land bill

Dharmakirti Joshi, chief economist at ratings agency Crisil in Mumbai, said these two laws were the centerpiece of the government’s promise to make India an easier place to do business. “What is happening in respect to both the bills is that there is delay and dilution of content. If they don’t get cleared, yes, it will be a hit to the sentiment and it will constraint growth going ahead,” he said.

The ambitious tax reform bill, called the Goods and Services Tax, aims to create a single market across India by replacing a host of confusing taxes levied by individual states with a single sales tax.

The land bill would have made it easier for industry to acquire land to put up factories, but those plans have also been put on the back burner after the opposition denounced it as “anti-farmer.”

Prime Minister Modi is having a tough time passing laws because despite winning a spectacular victory last year, his government does not command a majority in the upper house of parliament.

Political impasse

Political analyst Satish Misra at the Observer Research Foundation in New Delhi blamed the government for not doing enough to build bridges with the opposition.

“They will have to take the opposition on board, only then things will start moving…the government is not willing to concede even an inch to the opposition,” Sitish Misra stated.

The political impasse is taking its toll. In a recent report, global credit rating agency Moody’s said the political infighting is denting business confidence and the government’s failure to deliver promised reforms could derail growth.

Modi came to power last year on the promise of restoring momentum to a flagging economy. Growth has picked up, but the pace of change has been slower than expected from a man who many had hoped would transform India’s business climate.

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