A New Government in Delhi: will the elephant dance again?

A New Government in Delhi: will the elephant dance again?

Strategic Communications

May 27, 2014

The election campaigns of the incumbent (Indian National Congress or Congress) and the challenger (Bhartiya Janata Party or BJP), in the recently concluded Indian elections, were studies in contrast. While the BJP aggressively pushed the polarizing figure of its prime ministerial candidate Narendra Modi, communication from the Congress appeared inadequate, reluctant even to sell some of its best work to the electorate. The result was a clear sweep by the BJP – winning 52% of the parliamentary seats, despite winning just 31% of the polled votes – and the first single-party majority government in three decades. Such a clear party mandate caught many by surprise, including those in the victor’s camp. With less than 10% of the seats in the lower house, the Congress will not be able to assume leadership of the official opposition party (a cabinet rank position in government) by itself – the Congress’ Gandhi-Nehru dynastic appeal has clearly worn thin.

In this article, we analyze the implications of this change of guard in Delhi, for the business community in India and abroad.

A functioning Parliament

With a clear majority government of 282 of the 553 seats in the lower house (Lok Sabha) of parliament, the new BJP government can function without coalition partners getting in its way. Parliamentary proceedings in the lower house are expected to be tamer and more productive in the next five years. However, with only 62 seats in the 245-seat upper house (Rajya Sabha), the government will be unable to pass legislative bills without the support of the Congress and its allies (as non-money bills require passage in both houses). The numbers in the upper house are expected to change in BJP’s favour in 2016, when a third of the upper house seats are up for re-election.

Till then, the BJP government is expected to focus on administrative improvements, with an emphasis on taxation reforms, to reassure investors and help re-start the investment cycle. Following are three taxation-related policy initiatives that the new government is expected take up in the first 100 days of its tenure:

  • Roll back of retrospective taxation provisions – The BJP had promised to end the colorfully-worded ‘tax terrorism’ of the previous government and win back investor interest as its first priority. Prime Minister Modi is unlikely to delay a resolution on this contentious issue and is expected to provide clarity on this subject by July 2014, during the budget session of parliament.
  • Goods and Service Tax (GST) Bill – This significant legislation harmonizes the multiple central and state-level indirect tax regimes currently in place, and replaces it with a single unified regime. The new government is hoping to enact the necessary legislation for a nationwide GST rollout by April 1 2015. The Congress has promised, for now, to support the government and allow passage of both, the constitutional amendment bill (dividing central and state tax remits) that needs to precede the GST Bill and the GST Bill itself, in the upper house.
  • vDirect Tax Code (DTC) – this will replace India’s archaic income tax laws and simplify the tax structure. The roll-out, however, is expected to coincide with that of the new GST regime.

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