Parliament’s monsoon session may leave markets disappointed

The monsoon session of the Parliament is to start from Tuesday and the government will have its hands full in dealing with the Opposition and passing key legislation through both the houses. After 14 months in power euphoria surrounding Modi is dying and investors are fast losing confidence in the government’s ability to initiate reforms. While the economy is set to grow around 8 per cent for the current fiscal and India seems to be a favourable destination given the slowdown in China and the fallout of Greece, the slow pace of reforms may hurt the investor sentiment with markets taking another dip this year.  

Is productivity a problem?

The Modi-government has been in power for past 14 months during which three parliament sessions have been convened. While the opposition has tried its best to stall work in the sessions, the government has been successful in getting bills passed barring a few major legislations.  

Data collected by PRS Legislative Research, an organisation that tracks the affairs of the Indian Parliament suggests that the Budget session was the most productive session in the last 15 years with Lok Sabha working for 123 per cent of its scheduled time, while Rajya Sabha’s productivity was at 101 per cent. 

Productivity is not so much of a problem for the government, with about 65 bills to be tabled in this session and the government expecting to clear most of them barring the reforms on land, labour and GST.

"While productivity in terms of actual bills considered and number of deliberation hours in recent parliamentary sittings are at multi-year highs, progress on these key bills have been snail-paced," wrote Radhika Rao, senior economist at DBS, in a research note. 

Land, labour and GST reforms

With all eyes set on the three key legislations that Modi government promised before coming to power and most of the policy initiatives like "Make in India" hinging on clear passage to these bills, the clearing of any of these legislations is seen as a pre-requisite for the markets to feel confident again.

Land Acquisition Act

Currently under review by the Joint Parliamentary Committee, the bill still has a lot of issues of contention for the government. With no clear consensus on the consent clause and the bill being deemed as anti-farmer by the Opposition, the bill may not see light of the day in this session as well. The JPC has still not submitted its report on the legislation which is still an ordinance, and a week's delay in submitting the report will leave less time for discussion thereby leaving the bill to be tabled in next session only.  

Goods and Services Tax

The government was able to build consensus amongst states on the GST provisions earlier this year, but the issue of the exemption list and additional state levy has brought the government on the back foot and stalled the progress of the bill. With states demanding full compensation for the next five years and finance minister having already promised a roll out by April 2016, getting the bill through Upper house where the opposition has a majority may be a bit of a problem. Another hurdle for the government will be getting subsequent approvals from the state governments which may put a stall on FM’s promise of a GST rollout by April 2016.

Labour reforms 

Although a non-issue for now as there are no clear reforms on the labour laws, the government will be provoking the ire of the labour unions as it tries to simplify labour laws which are currently skewed in favour of unions. With the government trying to make laws simpler for corporates so as to attract foreign investment, the initiative will be raked up by the Opposition. 

Vyapam, Lalitgate and Pakistan

Besides the structural and administrative constraints that lie before the government in implementation of reforms, the current scams around the government will play a major role in stalling big decisions. From the deaths linked to the Vyapam scandal in Madhya Pradesh to involvement of the minister of external affairs Sushma Swaraj and Rajasthan Chief Minister Vasundhara Raje in the ‘Lalitgate’ controversy the government will have to tread lightly as opposition tries to stall the parliament. An all party meet by the government on Sunday made it clear that the Opposition will stall the Parliament till the prime minister provides clear answers on these issues. 

Another reason of worry for the government will be the softening of stance against Pakistan. With the crossfire on the border after the agreement by prime minister to visit Islamabad next year, a united Opposition will be gunning for the government on issue of Pakistan as well. 

Markets: Up or down?

While the early indicators point to a stormy session for the government with a lot on the line, markets are expected to see a tumultuous week going ahead. 

The Indian stock markets have been turbulent since the start of the year touching 30,000 earlier this year and then falling to a year low just last month. However, the effect of global concerns like China and Greece have been negligible with markets bouncing back again. Low corporate earnings and lack of clarity on the government’s ability to clear major bills will remain concerns for market players. 

With a lot of PE investors pushing for IPOs this year to make an exit, a rough ride in the markets may stall those plans. 

"As we have seen today markets have been lacklustre and they will remain lacklustre as far as response to the monsoon session is concerned. Markets will be impacted by corporate earnings; so we can see stock specific rallies. As far as the session is concerned, the passage of bills seems difficult as the Opposition has already indicated that they will stall the bills," said KK Mittal, vice president at investment advisory firm Venus Capital.

Expressing similar concerns on the government's ability to pass reforms Radhika Rao said, "An uneventful parliamentary session will be negative for market sentiment, especially as the land acquisition bill and GST framework have become key barometers of the government’s ability to implement its agenda.” 

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