Parliament will reconvene in February with the President’s address on the government’s agenda for the year. The first UPA governmenr started off with a number of reform-oriented bills. Many of these were not passed as they faced opposition from the Left parties. The BJP supports several of these Bills.
The financial sector
The Pension Bill was introduced in 2005, and in the absence of parliamentary approval, has been implemented through executive order. The pension authority has entered into contracts with pension funds and other intermediaries which have agreed to be regulated. It is imperative that the regulator is provided statutory powers, and the anomaly of regulation through contract is corrected.
The government has introduced two Bills regulating insurance companies. One bill raises the limit for foreign shareholding to 49 percent and increases capital requirements. The other increases the equity capital of the Life Insurance Corporation of India and permits the government to reduce sovereign guarantee on its policies. Both bills are now pending in Parliament.
Commodity derivatives are currently banned in India—the futures markets function under the broad umbrella of being forward contracts. A Bill was introduced in 2006 to permit commodity derivatives. That Bill also strengthens the regulator and requires commodity exchanges to be corporatised and demutualised—in short, aligns it to that for equity markets. That Bill has lapsed and will likely be reintroduced.
The microfinance sector does not have uniform regulation. The Microfinance Bill, 2007 has lapsed. It proposed to set up NABARD as the regulator, prescribe prudential norms and disclosure requirements, and permit these entities to accept savings deposits. The lapsed Banking Regulation Amendment Bill that proposed to amend the norms for takeover of banks and redefine related part transactions.
The broader corporate sector
Two bills—the Companies Bill and the Direct Taxes Bill—have wide implications. The Companies Bill replaces the existing 1956 Act. It seeks to shift the onus of regulation and oversight over management away from management and towards shareholders. It strengthens corporate governance norms, increases shareholder control in some cases, and creditor powers on restructuring plans. It also enhances some penalties and establishes special courts.
The Draft Direct Tax Code was released last year, and seeks to replace the Income Tax and Wealth Tax Acts. Its main thrust is to simplify the tax code, remove exemptions, lower tax rates, and reform tax administration. Some provisions have seen criticism—such as a minimum alternate tax based on assets, taxation of all savings at withdrawal, and treatment of double taxation treaties. The finance minister has indicated that he intends to introduce the bill this year, and wishes to bring in into effect from April 2011.
The justice system
The law minister has released a vision document to reduce the backlog of cases. One Bill towards this end has been introduced—it seeks to allow High Courts to directly take up all commercial cases in which the value at dispute is over Rs 50 million. The Bill was passed by Lok Sabha, and is now being examined by a select committee of Rajya Sabha.
Three issues relating to accountability of judges have come under the scanner. First, the disclosure of assets by judges: a Bill was drafted that required judges to disclose their assets to the Chief Justice but not to the public. Facing opposition from Rajya Sabha MPs, the law minister decided not to introduce the Bill. Second, the process of impeachment of judges: a Bill introduced in 2006 permitted any person to file a complaint against a judge. The complaint would be investigated by a judicial council which would then recommend any further action.
That Bill has lapsed. Meanwhile, impeachment motions have been instituted against two high court judges. Third, the process of appointment of judges has seen public debate, in particular after the Justice Dinakaran episode: the law minister has indicated that he would be introducing a judges standards and accountability bill.
The right to elementary education bill has been passed. The higher education sector has also received reform proposals from the National Knowledge Commission and the Yash Pal Committee. Watch out for bills that permit entry of foreign universities and that provide for a regulator for all institutions of higher education.
NREGA was the landmark social sector legislation of UPA government. The government had also passed an enabling bill for providing social security for unorganised sector workers. Two bills with far reaching impact are in the works. The Food Security bill guarantees every family below the poverty line 25 kilogram of rice or wheat per month at Rs 3 per kg. The National Health Bill lays down the obligations of the government to provide certain minimum standards of access to healthcare and factors affecting health such as safe water.
Reforms and resolve
This year will be a test the government’s reform credentials. The second UPA government is not likely to tackle the politically tougher decisions such as reforms related to labour, power and retail trade that can have significant contribution to productivity growth. But even the easier task of legislative action in the areas outlined above—in which its stated objectives are similar to that of the BJP—can improve the quality of economic growth. It is to be seen whether government utilises this window of opportunity to pass laws that could further its stated agenda of sustainable and inclusive growth.