A dysfunctional Parliament needs to be factored in
While the stock markets have factored in an NDA victory, and a sharp economic recovery after that, a reality check is in order. For one, with over 11% of all loans given out by public sector banks either already non-performing or restructured, there is a large recapitalisation problem looming. Estimates vary as to how much of banking capital is likely to get eroded; Credit Suisse calculates banks need R2.1-4.8 lakh crore over the next 3 years to meet both their needs of writing off loans as well as to meet prudential norms. Meeting this capital requirement is critical since, were this not to be infused, banks will have no option but to slow down their lending. Not all this capital, it is true, needs to come from the government, but certainly the current pace of capitalisation is nowhere sufficient. The government’s best bet, under the circumstances, is to lower its stake in banks—the BJP had suggested, and then not moved on it, a level of 33%. Reducing government equity to below 51% is also important from the efficiency point of view since government banks tend to have significantly higher proportions of dicey loans in comparison with their private sector counterparts. Were the NDA, if it does come to power, to even think of doing this, it will run up against the wall of Parliament—since banks were nationalised through an Act of Parliament, undoing this requires Parliament’s nod. And even if the NDA were to come up with an absolute majority—something no opinion poll has suggested as yet—it has a problem in the Rajya Sabha as it does not control that right now.
Indeed, while the UPA’s lack of executive action, in the case of the environment ministry for instance, is largely responsible for the ‘policy paralysis’ imagery, there can be little doubt Parliament not functioning has added to this in a big way. The 15th Lok Sabha has been the least productive in Parliament’s history, not just in terms of the time spent, but also in terms of the Bills passed—the 6th, 9th, 11th and 12th Lok Sabhas, it is true, passed less Bills, but none of these served their full term. And of the Bills passed in the 15th Lok Sabha, 36% were debated for under 30 minutes.
Assuming a Modi does come to power, how is he to sort this out? And if he doesn’t, how are banks to raise capital? Similarly, how is the Direct Taxes Code to be passed, or the Goods and Services Tax Bill that Modi has publicly said he is in favour of—BJP states, including Gujarat, have been opposing the Bill so far. Without Parliament’s nod, though the BJP brought in a Bill to this effect when it was in power, it will not be possible to open up the coal sector to private miners either—it is well accepted, though, that Coal India’s inefficiency has been one of the reasons for power projects getting held up all these years. In which case, the Sensex will be disappointed to learn, in some vital ways, the NDA could end up as lame duck as the UPA.