Think it through

EDITORIAL

Can a minority-led coalition be guardian of public interest?
Article Date: 
Dec 11 2012, 2057

The business of passing new legislations is increasingly becoming an uphill task for the government. First, it was clearing foreign direct investment in retail. The government won that vote, only after obtaining numbers through abstentions from the Mayawati’s Bahujan Samajwadi Party and Mulayam Singh Yadav’s Samajwadi Janata Party. But these votes were obtained not on the merit of FDI in retail, but more on account of creative parliamentary arithmetic. Such number plays are resorted to only because the Congress is a minority government. However, number games have limitations with coalition governments in passing new laws, especially when the main party, as with the Congress, is unable to pass legislation on its own. A number of legislative bills are pending to be cleared in this session, including the banking laws amendment bill and amendments to the Insurance Act of 1938. The opposition’s stand on the banking laws amendment bill is that banks cannot be allowed into futures trading, since the standing committee has not cleared it. They are also against removing the 10 per cent voting cap in banking companies. If the standing committee has not cleared the provisions, then the opposition’s demand appears to be reasonable. After all, futures are derivatives transactions that have huge impact on bank balance sheets. India cannot be blind to the banking crisis in the United States, which partly resulted from the repeal of the Glass Steagall Act of 1933. That Act protected depositors from additional risks associated with security transactions. Banks are companies with public savings. Therefore, allowing them into derivatives trading needs to be intensively examined before passing a law. This is because allowing banks to take to derivative transactions exposes the financial system to what is referred to as systemic risks. Given that position, it is better that such amendments are done with extreme caution. That is the essential function of the standing committees of Parliament. As for the second provision, whether voting rights need to be capped at 10 or 26 per cent is debatable. Ideally, corporate principle is that that one share equals one vote. So any debate on this particular point is meaningless hair-splitting. It is possible that the opposition is indulging in deliberate filibustering. Yet the broader question is whether a minority-led coalition government can be guardian of public interest. Coalitions would be obsessed with survival for the full term. Besides, the UPA’s principal allies have little common ground in economic policy-making. This is precisely what makes law making extremely difficult, particularly when banking legislations need to be amended fast to enable quick reaction to rapidly changing external environment. As for the insurance amendment bills, although the cabinet has already cleared 49 per cent foreign stake holding in domestic insurance companies, the bills need to be passed. Unless the amendments are passed, the foreign investment cannot come in nor are the Indian stakeholders in a position to bring in more capital into the sector. Obviously, the government is not going to find it easy to replicate the retail FDI exercise in clearing banking and insurance bills. If the bills cannot be passed this session, it is doubtful they can be passed in the next session. This is because 2013 becomes a year for preparing for the 2014 elections, unless of course, they are advanced. The stalemate in the passage of new laws clearly point in that direction.

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