The Modi government, which is eager to show the investor community its intent to fast-track reforms, was left with limited options after the Opposition blocked key bills in the Rajya Sabha during the Winter Session. So after the session, the government passed ordinance on coal and insurance to increase FDI in the sector from 26 per cent to 49 per cent.
Although the Insurance Bill, which seeks to raise FDI in insurance, was approved by the standing committee as well as the select committee of the Rajya Sabha, it could not be passed in the Upper House due to continuous disruptions by the Opposition. The government first passed the coal ordinance in October to open up the coal industry to the private sector but failed to convert it into a law during the Winter Session of Parliament.
So the government had to re-approve it to conduct auction of coal blocks which were cancelled by the Supreme Court. With a coal-surplus country like India already being forced to import coal due to regulatory issues, any further delay in coal reforms would have made matter worse.
Many power plants have been struck due to supply issues and the government, which wants to restart the investment cycle in the country, could not wait idly while project after project gets derailed as it can’t get the fuel. While the Opposition knows that it can’t take on the government in the Lok Sabha, it had struck at disrupting the Rajya Sabha where the NDA is in minority.
An analysis by HSBC shows that out of the 37 bills listed by the government for passage during the Winter Session of the Parliament (November 24 to December 23), only 12 were cleared by both Houses of the Parliament. A further analysis show that while the Lower House passed 18 legislations, the Upper House passed only 12 Bills.
“One possible explanation for the higher productivity of the LS is the outright majority enjoyed by the ruling BJP government (282 out of 543 seats); while the RS, where the BJP is in a minority, saw greater disruptions,” said HSBC. However, while the ordinance shows government intent to push reforms, it does leave uncertainty on the table.
“While ordinances can be reissued once they lapse, they may not be perceived as a stable solution by investors wanting secure property rights.” But nevertheless, it is an important step to signal the government is seriousness on reforms.
It could even put pressure on the Opposition parties, particularly the Congress, to come on board, which was also pushing the Insurance Bill during its rule. Even the Congress had chosen the ordinance route to launch its favourite food security programme for almost two-thirds of the country’s population. For the Modi government, it is important to protect its pro-investor image which helped it to come to power and it is where ordinances help, even if the actual passage of these bills can wait.
