Washington, DC – With a year left in Prime Minister Modi’s current term, his economic record is coming under scrutiny. Most apolitical observers agree that while there have been some highlights, such as enacting the Goods & Service Tax (GST), expectations had been higher. Although our program gives relatively high ratings to Mr. Modi for completing nine of the 30 largest reforms pending when he came to office, his supporters sometimes make a common excuse for the lack of more reforms, pointing to persistent weakness in the upper house of Parliament, or Rajya Sabha. At best, this rejoinder to critics is only half true.
When Prime Minister Modi came to office, we noted three major factors that could impact the pace of reforms. First, the Bharatiya Janata Party (BJP) only controlled around 20 percent of the seats in the Rajya Sabha. Second, the BJP only controlled five of India’s 29 states. And third, within his own party, there remains a strong constituency calling for “Swadeshi,” or self-reliance. This third factor impedes any reforms that may open the Indian economy to trade and investment.
The BJP’s progress in winning seats in the Rajya Sabha has been slow. Members of the Rajya Sabha are indirectly elected by members of India’s state legislatures and sit for six-year terms. The BJP’s string of state election victories will take some time to translate into a major position in the Rajya Sabha. At the time Mr. Modi came to office in May 2014 his party held 43 seats in the Rajya Sabha. Today they hold 73 seats, a 70 percent increase over four years; however, this amounts to only 30 percent of the total seats in the chamber.
Over the last four years, the BJP has made considerable progress in winning state elections. 15 chief ministers are from the BJP, and his party is in coalition governments in several other states. Winning state elections is important for two key reasons. First, it allows stronger last-mile connectivity in enacting initiatives on-the-ground, because enacting many reforms in New Delhi will involve state-level execution, such as reforming the power grids or agriculture markets. Second, it makes passage of constitutional amendments easier, as such amendments require the approval of half of Indian states.
The last factor impacting reforms, anti-reform elements within Mr. Modi’s party, is more difficult to quantify. Three areas of real weakness in economic policymaking, lacking the fortitude to sell off state-owned enterprises, disinterest in trade integration, and a preference to expand price controls, seems to be more “Modi” and less “BJP” considering the Vajpayee government had much more progressive views on these three topics.
Digging more deeply into the issue of the party’s strength in the Rajya Sabha begs the question, “how much of the reform agenda requires legislation?”
Some types of reforms listed as “legislative” could be partially handled through regulation. Similarly, some reforms where “no legislation is required” may, in fact, require statutory backing such as having India’s “independent” regulators enact more thoughtful, transparent processes for enacting new regulations. But the Modi government certainly has sufficient authority to initiate more reforms, even in these final months in office.
The Rajya Sabha is slow to change, limiting the BJP’s influence in this chamber of Parliament. Some legislative reforms have been blocked by the opposition due to political sensitivities, such as labor reforms. Other reforms have been held up by the opposition as they would “roll back” legislation that the Congress-led United Progress Alliance (UPA) government had passed, such as easing land acquisition rules. But much of the pending reform agenda does not require Parliamentary approval. And with Mr. Modi’s relative strength within his own party, these non-legislative reforms should be vigorously pursued even in the government’s final months.