As the hoopla about Prime Minister Modi’s blow-out electoral triumph dies down, the constraints on his policy agenda are becoming clearer. One of these is that the need to combat chronic inflation means the continuation of tight monetary policies at least for the foreseeable future. Another is that rival political parties still control the upper house of parliament, which for now will have the power to disrupt important parts of Modi’s legislative agenda. A third is that these parties also control most of India’s state governments, which have immense discretion over the major infrastructure projects he wants to accelerate.
A key development in Modi’s favor, however, is the emergence of a large bloc of states in the northern and western parts of the country governed by administrations now looking to emulate the very economic model he crafted in Gujarat. These states would do well to copy the reforms he enacted in the electricity sector, labor market regulation, and land clearances for industrial projects.
(UPDATE, June 10: The BJP government in Rajasthan is preparing legislation to enact critical labor market reforms.)
The emergence of a “Saffron economic bloc” of state governments would be a powerful force offsetting the other elements of the Indian system that will act to stymie the impatient Mr. Modi. Its success also would have a potent demonstration effect for the rest of the country.
Read the entire article at Fair Observer here.