UP elections: Demonetisation pays off, Modi govt expected to step up reforms

 

The Modi government is expected to accelerate economic reforms as the BJP looks set to score a huge win in Uttar Pradesh assembly election, which was billed as a referendum on demonetisation.

Prime Minister Narendra Modi’s BJP was headed for a two-thirds majority to make a comeback in the country’s largest state, counting trends indicated.

The outcome belies apprehensions in the Sangh Parivar and a section of the BJP about the political fallout of the Centre’s decision to scrap 500 and 1000 rupee banknotes.

The concerns were accentuated by a concerted attack on the government by opposition parties, which sought to make political capital of people spending hours at ATM kiosks and banks to withdraw money as fund crunch hit hard.

With his demonetisation gamble paying off electorally, Modi is expected to push reforms including those perceived to be politically unpalatable.

“The opposition parties will see the writing on the wall that India is supporting Modi’s economic policies in a big way. It will now be easier for the government to secure a broader political consensus on restructuring the banking and financial sector,” said NK Singh, former parliamentarian and revenue secretary.

The reforms he expects the government to initiate include permission for banks to raise money from the market and steps to reduce the non-performing assets of public-sector banks by opting for a “haircut”.

Writing off a big chunk of bad loans could be a politically contentious decision but Saturday’s verdict could give the government the required political heft and moral courage to go for it.

With a demoralised opposition in Parliament, the two enabling legislations for the rollout of the goods and services tax (GST) are likely to have a smooth passage.

Though the opposition has a majority in the Upper House, they couldn’t block money bills and after the state election results, they are unlikely to even put up a resistance.

The government can also be expected to stand its ground within the Sangh Parivar on labour reforms concerning wages and industrial relations among others.

The poll results also came as an endorsement of finance minister Arun Jaitley’s budget that avoided populism, stuck to fiscal prudence and focused on long-term measures to insulate the economy from the disruptive impact of demonetisation. He had enough reasons to smile on Saturday.

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