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Coin Primer | Alliance dharma: what reforms work, what don’t

After two terms of absolute majority, the Indian electorate has given a fractured mandate to the Narendra Modi-led BJP. The era of coalition politics is back with a bang. Does this also mean the end of the promise of major reforms? Mint explains.

After two terms of absolute majority, the Indian electorate has given a fractured mandate to the Narendra Modi-led BJP. The era of coalition politics is back with a bang. Does this also mean the end of the promise of major reforms? Mint explains.

Will green energy reforms continue?

Renewable energy sources and electric mobility are two of the Centre’s biggest areas of focus, and irrespective of the political situation, this is likely to remain the case. In his post-election speech, Modi referred to green energy several times. During its second term, the government introduced production-linked incentive (PLI) schemes to boost local production of electric cars and lithium cell batteries, among others. More sector-specific incentive measures will be formulated in this scheme. The third phase of the Faster Adoption and Manufacturing of Electric Vehicles (FAME) program could be one of the first announced by the new government.

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Will green energy reforms continue?

Renewable energy sources and electric mobility are two of the Centre’s biggest areas of focus, and irrespective of the political situation, this is likely to remain the case. In his post-election speech, Modi referred to green energy several times. During its second term, the government introduced production-linked incentive (PLI) schemes to boost local production of electric cars and lithium cell batteries, among others. More sector-specific incentive measures will be formulated in this scheme. The third phase of the Faster Adoption and Manufacturing of Electric Vehicles (FAME) program could be one of the first announced by the new government.

What about labor and land reforms?

India’s burdensome labor laws and difficulties in acquiring land are two of the biggest challenges facing the industry. Although governments have tried to address these issues in the past, they have faced a backlash. The NDA government also wanted to usher in reforms in these two areas. However, the urge to confide in its allies means that large-scale changes are now unlikely. In 2019-2020, labor laws were consolidated into four codes, but these have yet to be notified pending legislation in the United States. Reforms such as the digitization of land data will continue, but a revision is almost certainly out.

Will farm laws make a comeback?

Unlikely. Since the prolonged protests and the rollback of the agricultural law, little has changed in practice. Farmers have maintained their demand for a price guarantee, while the government remains non-binding. If there was a brute majority, there was a chance that a watered-down version would be introduced, but if the verdict was broken, that was too risky a political gamble.

What other reforms could stall?

Privatization may lose momentum. The Center also hoped to implement two other major reforms: a uniform civil code and synchronized elections. Both may be shelved as consensus may be difficult to reach. Then there are other smaller reforms, such as bringing petroleum products under GST. This is unlikely because states rely on oil to make up for any revenue shortfalls. The delimitation exercise, which would have skewed the balance of power towards the northern states, is also likely to face resistance.

What else can be done?

History shows that reforms do indeed take place in coalitions. Some experts believe that the new government may be able to rationalize direct and indirect taxes. The resilience of the economy and strong VAT revenues have provided the government with sufficient leeway to adjust income tax rates. There is likely to be no objection to restarting the stalled GST rationalization plan to overcome the problem of embedded taxes, especially in exempt sectors like healthcare, where taxes paid on inputs cannot be offset.

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