Economic Reforms and Coalition Government in India

No single party has got absolute majority for the 18th Lok Sabha. In the real sense, there will now be a coalition government. In terms of economic governance, the last two Lok Sabhas were considered positive in the direction of economic reforms because for the first time after the beginning of economic reforms in the year 1991, there was a majority government of a single party.

Coalition Governments and Economic Reforms

• All Lok Sabha elections since 1991 have been followed by coalition governments and the main parties have been far from the absolute majority (272 seats).
  • This was the period of India opening up its economy and abandoning the planned economy model.
• In the words of Montek Singh Ahluwalia, former Deputy Chairman of the Planning Commission, because of this apparent weakness of the leading party, there was always ‘a strong consensus for weak reforms’ in India.
• Although there was general agreement on the need for economic reforms, coalition parties often disagreed on specific issues, weakening reform measures.

Notable economic reforms of past coalition governments

P.V. Narasimha Rao Government: Economic Liberalization

• Internal economic reforms: The then minority government led by P.V. Narasimha Rao initiated major economic reforms. Centralised planning was abandoned and the Indian economy was opened up to global competition by removing the licence-permit raj. 
• Global Integration: India implemented the policy of liberalisation, privatisation and globalisation and during this period India also became a member of the World Trade Organisation.

H.D. Deve Gowda government: dream budget 

• Finance Minister P. Chidambaram presented the 'Dream Budget', which reduced tax rates for personal income tax, corporate taxes and customs duties, thereby boosting confidence among Indian taxpayers.
• Before the ‘Dream Budget’ there was a growing belief that reforms could be stopped and cancelled but the Budget of 1997 brought back the belief that reforms were continuous and irreversible.

Vajpayee Government: Fiscal and Infrastructure Reforms

• F.R.B.M Framework: The Fiscal Responsibility and Budget Management (FRBM) Act was enacted during the first National Democratic Alliance (NDA) government and sought to limit government borrowing and promote fiscal discipline.
• Disinvestment and Infrastructure Development: The government pushed forward disinvestment of loss-making public sector undertakings and promoted rural infrastructure with the PM Gram Sadak Yojana.
  • Along with laying a network of modern roads across the country, decisions were taken to connect remote mountainous areas with the rail network.
• Foundation of e-commerce sector: The Information Technology Act, 2000 has played a vital role in laying the foundation of a strong e-commerce sector in India.

Manmohan Singh Government: Rights-Based Reforms

• Right to Education: Under the Manmohan Singh-led United Progressive Alliance (UPA) government, India implemented the Right to Education Act, taking forward the Sarva Shiksha Abhiyan of the previous government.
• Transparency: Transparency was promoted in India's democracy by passing the Right to Information Act.
• Public Welfare: Rights-based public welfare reforms such as the right to food under the National Food Security Act, getting minimum employment in rural areas under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) were implemented.
• Economic and Technological Progress: Efforts were also made to start programs ranging from controlling fuel prices to direct benefit transfer, Aadhaar and GST implementation.

Factors that distorted economic reforms in coalition government

• Coalition governments in India have historically faced challenges in implementing strong economic reforms due to differing priorities among coalition partners.The factors mainly responsible for this are:

• Priorities of coalition partners
  • Coalition partners often have different political and economic agendas, which necessitate compromises and undermine reforms.
  • This can slow or alter the pace of economic reforms.

• Difficulty building consensus
  • Although coalition governments can foster broad consensus, the need to maintain the support of different factions often leads to weak reform measures.
  • It becomes difficult to achieve a unified stance on complex economic issues.

• Policy instability.
  • Frequent changes in support among coalition partners or internal disagreements increase policy instability, which can affect investor confidence and long-term economic planning.

Current Coalition Government's Economic Reform Approach

• In the last decade, the objective of majority government was to overcome the weaknesses of coalition governments, ensure policy stability and increase investor confidence.
• Important reforms such as the Goods and Services Tax (GST) and the Insolvency and Bankruptcy Code were introduced. However, these goals could not be fully achieved.
• The government faced challenges, which included failing to reform land acquisition and canceling agricultural reforms after widespread protests.
• The announcement of demonetization also created significant economic uncertainty.

Conclusion

• The statement that coalition governments inevitably derail the momentum of India's economic reforms is simply not true. India's economic history since 1991 makes it clear that coalition governments have undertaken many bold and visionary reforms that have laid the foundation for India's resurgence.
• However, it should also be kept in mind that a coalition government may pose challenges to economic reforms but effective leadership, clear communication and strategic agreements can mitigate these risks and maintain the momentum of reforms.