The stock market crash after the exit polls of 19thLok Sabha elections in India, turned out wrong, reflects the weakened trust in coalition Govt. of Modi 3.0.
Advocates of proportional representation suggest that a coalition government leads to more consensus-based politics as it resultsinto accommodating diverse interests. Those who disapprove of coalition governments believe that such governments have tendency to bring in the regional facts in the national decision-making, to be fractious and are prone to disharmony having a direct adverse bearing on the path of economic development and growth.
A government with a comfortable majority enables to bring bolder reforms
In last decade (Majority Govt 2014-2019 and 2019-2024), the Indian economy has grown by an average annual real rate of 6 % to the latest fiscal year ending in March 2024, surprisingly against the backdrop of a slowing down of many major economies, especially China’s and projections indicate that India may surpass Japan and Germany, to become the world’s third-largest economy by 2027.
A series of structural reforms have significantly improved India’s macroeconomic landscape were witnessed during this period. Notable among these reforms is the introduction of Goods and Service tax; New Bankruptcy code; disinvestment strategy and opening more sectors to FDI along with Make in India initiative and Start-uppolicy help spur the investments, both public and private and both from domestic and foreign sources.
Can a coalition government derail the economic reforms trajectory?
While some say that coalition governments generate more inclusive policies, others believe that coalitions impose constraints on policy making.
In context of India, some of the most transformative reforms were taken during the Coalition era, which laid the foundation for the country’s resurgence.
The biggest example is the Economic reforms of 1991led by PV Rao government, which was essentially a minority government. It discarded centralised planning and opened the Indian economy to global completion by removing the licence-permit raj. The country also became a member of the World Trade Organisation. Further, Vajpayee led coalition was successful in bringing FRBM Act for fiscal rectitude and limiting govt borrowing capacity; push for Disinvestment of loss-making PSUs and brought Information Technology Act 2000 which laid the foundation for Digital India, as witnessed today.
The reforms initiated during 2014-2024 have fundamentally altered India’s economic environment, boosting its stability and appeal to international investors. However, it was not exactly a smooth ride all through. For instance, Government failed to bring the Labour codes and Land acquisition bills. Further, decisions like Demonetisation injected a deep sense of insecurity among all economic agents.
And if history be the guide, it becomes clear that coalition governments have undertaken some of the boldest and most visionary reforms that laid the foundation for India’s resurgence.
What lies ahead?
The last decade (2014-2024) set a robust economic growth and initiated a healthy cycle of capital expenditure, setting the stage for what lies ahead.
So, diverse interest of coalitions maycause delay in decision-making on major reforms,but the strong coalition is hoped to provide stability, potentially safeguarding economic reforms and sustaining growth momentum. Experts suggests that the current focus is to be on executing existing policies rather than embarking on new reform initiatives.
