Modi’s consolidation of power comes with opportunities for reform

Modi’s consolidation of power comes with opportunities for reform

Since Narendra Modi became Prime Minister in 2014 the BJP has rapidly consolidated power, taking control of key positions and states. This power, which is only expected to increase, gives him the ability to enact substantial reforms. Whether he will make the necessary structural reforms or not, however, is another question.

The Bharatiya Janata Party (BJP) has rapidly cemented its position as the unrivalled leader of Indian politics. Pushing forward on a platform that combines reform and Hindu nationalism the BJP, with Prime Minister Narendra Modi at its head, has made massive gains across India, beating back the Congress Party, its rival, at nearly every turn.

Big tax reforms

Modi’s power and popularity have made significant reforms possible, the biggest of which is perhaps the passing and implementation of the Goods and Services Tax (GST), akin to a value-added tax. The GST was designed to simplify and unite India’s tax system – eliminating complex tax rates established on a state by state basis and replacing it with a pan-Indian tax scheme that would allow India to operate as a single market.

Modi hasn’t been entirely successful, however. The end result of the GST, a complex multi-banded system far from the single tax rate envisioned by businesses, may be indicative of his political limitations. And in many cases, Modi has called on states to implement reforms themselves and make states more attractive for business investment. But as the BJP widens the breadth of its control there will be fewer excuses for not putting forth powerful reform.

Significant electoral victories

The BJP’s most recent rise began in 2014 with its general election win led by Modi. Since then it has held its momentum and cemented its gains in state legislatures and in key positions in the federal government. In 2014 the BJP and the coalition it leads, the National Democratic Alliance (NDA), held only six states. Today they control 18.

Two of the most significant victories made by the BJP were their wins in Uttar Pradesh, often referred to as UP, and Bihar. In UP the BJP won the state legislature in a landslide victory, claiming 325 seats out of 403. The victory is significant because UP is the largest of the Indian states with a population of more than 200 million people. This victory will translate into greater power in the Upper House of India’s parliament which is elected by state legislatures.

The second victory was not made at the ballot box but instead took form when the chief minister of Bihar, Nitish Kumar, abandoned the coalition formed to defeat the BJP in favour of the NDA, the BJP-led coalition. These two victories represent the growing popularity and power of the BJP across Indian state legislatures – a crucial factor for implementing change in a largely federalist system.

The BJP has also managed to win key federal positions. On 25 July the BJP candidate, Ram Nath Kovind, was inaugurated as president and on 6 August Venkaiah Naidu, also a BJP candidate, won the election for vice president and will be inaugurated on 11 August. Although the office of the president is largely symbolic it does have critical powers such as the ability to dissolve the Lower House of Parliament and return a bill passed by parliament.

Control of numerous state legislatures, the Lower House of Parliament, and India’s three highest political positions gives the BJP both the power and the mandate to implement sorely needed reforms. It is possible that by 2019 or 2020 the NDA will have a majority in the Upper House, thus eliminating the final excuse for inaction.

What will Modi do with his newfound power?

India’s large youth population (more than half of its population is under the age of 25) will mean that reforms will be essential for providing the necessary job growth. Loosening labor regulation and liberalizing land and capital would certainly help. For example, in most states, firms in certain industries employing more than 100 workers must seek government permission before downsizing, creating a strong incentive for firms to stay small. Making the reforms, however, would require Modi to face down a number of vested interests.

With general elections coming up in 2019, Modi may be hesitant to implement any reforms that cause damage in the short run. But the more power the BJP has, the more it will be held to account to use it effectively.

Categories: Asia Pacific, Economics

About Author

Peter Hays

Peter is a London based analyst. He specializes in trade and regulation in the Asia Pacific region. He holds a MSc in Economy, Risk and Society from the London School of Economics and a BA in International Studies from American University.