At his meeting with top secretaries to the Union government last Friday in New Delhi, Modi said he was not lacking in political will for reforms and the ball was in the court of the civil servants to push for reforms and act as enablers. The prime minister argued that reforms could be executed only through an efficient bureaucracy.
Two days later, Modi told a meeting of chief ministers of states in New Delhi that they should give suggestions on how the governments’ financial year could be changed from the current April-March cycle to the calendar year cycle of January-December. At the same meeting, the prime minister sought the views of the states on combining the elections for the Lok Sabha and all state assemblies to be held at the same time.
It is tempting to read the prime minister’s statement that he did not lack political will for reforms as an indication that the Modi government is going to usher in a fresh round of reforms to boost economic growth and development. There is no doubt that the present government has taken some major reformist decisions like the launch of the bankruptcy code, abolition of many obsolete laws, relaxing norms for foreign direct investment in insurance, defence and railways, new regulatory structures including one for fixing railway tariffs and the roll-out of the goods and services tax from July. With a major round of state elections out of its way, the Union government may well be preparing for the next round of factor market reforms particularly with a view to easing labour laws and introducing land leasing norms to revive the manufacturing sector.
But that is not the more significant implication of Modi’s statement before the bureaucracy. The bigger message is that the prime minister wanted civil servants to know that the pressure was now on them to deliver on reforms. Whatever may be the ground reality, Modi’s statement that he did not lack the political will for reforms would be interpreted by the bureaucracy as a signal to it to focus on implementation of government decision with speed, efficiency and effectiveness. The pressure is obviously on the civil servants to deliver and they have been asked by none else than the prime minister to act as enablers and not as regulators. It is difficult to miss the subtle shift in the narrative on economic reforms. The new message is that the Modi government has the political will for reforms, but the bureaucracy has to raise the bar and deliver on implementing reforms and bring about the desired improvements in governance.
As regards the move to seek views on a change in the financial year cycle from April-March to January-December, Modi seems to have taken a big step towards initiating yet another change in the way economic governance takes place in the country. In the last one year, several such changes have taken place e.g. the presentation of the annual Budget has been advanced by four weeks, the distinction between expenditure under Plan and Non-Plan categories in the Budget has been eliminated, the practice of presenting annual and five-year plans has been abolished, the presentation of a separate Railway Budget speech has been scrapped, a new framework for fiscal consolidation targets is being finalised, a new inflation target has been set to be fulfilled by the Reserve Bank of India (RBI) under a law and a new monetary policy framework has been put in place to enable formulation of the monetary policy by an independent committee.
The change in the financial year cycle would have been yet another such change in the way the government functions with regard to the administration of economic policies. A committee headed by former chief economic advisor, Shankar N Acharya, had been entrusted with the task of recommending whether such a switch-over to a new financial year cycle was feasible. The committee has already submitted its report to the government. According to a statement made by Finance Minister Arun Jaitley in Parliament, the government is studying the recommendations of the committee. Significantly, however, the findings of the committee have not yet been made public.
And yet, Modi chose to raise the question of changing the financial year cycle and sought the views of the states, without even referring to the fact that an experts committee had already looked into this issue and submitted its report to the government. It is, therefore, not clear what the prime minister’s statement seeking states’ views on the financial year issue was actually meant to signify. Could it be to broad-base the debate over this issue by seeking the states’ views? Or was it to pave the way for a change in the government’s financial year cycle irrespective of what the experts committee might have recommended.
Finally, nobody can miss the political significance of the prime minister’s suggestion that states must give their views on the feasibility of combining Lok Sabha elections with those for state assemblies. Holding combined elections for the entire country for both the Lok Sabha and the state assemblies could be a major infrastructure challenge for the Election Commission. Also, there are serious uncertainties over whether the same sequence can be maintained every five years as nobody can guarantee that each of the state assemblies and the Lok Sabha would complete their respective terms of five years without any political developments necessitating an early election for any one of them.
Given the current political capital that Modi and the Bharatiya Janata Party (BJP) enjoy in many states, the holding of combined elections for the Lok Sabha and state assemblies might benefit him and the BJP. But what, however, cannot be underestimated are the adverse political implications and the associated uncertainties, the proposed system might give rise to.
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