Wheels of Rajya Saba May Not Turn As Fast As Morgan Stanley Expects Them To - Vivek Kaul's Diary
Free Reports

Wheels of Rajya Saba May Not Turn As Fast As Morgan Stanley Expects Them To

Mar 9, 2016

28

One of the things that I have written about in the past is the fact that the Bhartiya Janata Party (BJP) led National Democratic Alliance (NDA) government is likely to continue to be in a minority in the Rajya Sabha until 2019. The next Lok Sabha elections are due in 2019.

Even if one were to be very optimistic, the NDA would touch around 100 seats in the Rajya Sabha by 2019. Why is that? Unlike the Lok Sabha, the Rajya Sabha is not elected all at once. A certain section of the members keeps retiring, elections are held for these seats and new members are elected. Hence, the composition of the Rajya Sabha keeps changing gradually unlike that of the Lok Sabha, which changes all at once.

Given that NDA does not have numbers in the Rajya Sabha, it has not been able to get key legislation passed. In a recent research report titled GST, The Way Forward, analysts Sheela Rathi and Ridham Desai of Morgan Stanley, suggest that this is about to change and by July 2016, the government may be able to push through key economic legislation like the Goods and Services Tax (GST), through the Rajya Sabha.

So what is it that Rathi and Desai are seeing which others can't. Before we get into this, it is important to understand how the composition of the Rajya Sabha will change in the months to come. Every two years around one-third of the total members of the Rajya Sabha retire and new ones are elected.


Advertisement
 Modi 2016: An Agenda For Revival
 
 The Modi Report The landslide victory of 2014 handed Modi more than just a clear mandate...It handed him immense responsibility of a nation dreaming of great progress.

From the euphoria of Achche Din the mood in India has swung to cautious disappointment and now we are in 2016...

Who will answer the question how Modi can turn this ship around and get India back on track?

Vivek Kaul has the answer and he has put it all down, along with his deepest thoughts on the challenges India faces, in our latest special report titled - Modi 2016 - An Agenda For Revival.

And the best part is that he wants to give you this special report for free!

So, don't delay...Click here to download this special report right away!
 

Between March and July 2016, 75 members will retire from the Rajya Sabha. New members will be elected. These members are elected indirectly through an electoral college consisting primarily of the elected members of the state legislative assemblies. So you and me, dear readers, elect the members of legislative assemblies (MLAs) who in turn elect the members of the Rajya Sabha.

After these elections, the numbers of seats the BJP led NDA has in Rajya Sabha will go up. As Akhilesh Tilotia (the author of The Making of India), Sanjeev Prasad and Sunita Baldawa of Kotak Institutional Equities, write in a research note titled Wheels of Rajya Sabha Turn Slowly: "[In July 2016] core NDA allies will have 68 Rajya Sabha MPs (currently 61), almost similar in number to what the INC is expected to have (65)...After this round of elections in the Rajya Sabha, the next large round of elections will be in April 2018 and by then the NDA government at the Center would have completed four years of its tenure. The government will continue to have a minority position in RS until late in its term."

So, the NDA will have 68 members in the Rajya Sabha by July 2016. While this is better than the 61 members they currently have, it is too small in a house of 245. It also needs to be mentioned here that in order to get a Constitution Amendment Bill, like the GST, passed, the approval of two-thirds of the members of both the Rajya Sabha and the Lok Sabha is needed.

A joint sitting of both the houses of Parliament cannot be called in order to get a such a Bill passed, if the houses do not agree on the Bill. Article 368 of the Indian Constitution basically mandates that both the houses pass the Bill separately with a two-thirds majority.

Currently, the Rajya Sabha has 242 members instead of the sanctioned strength of 245. A two thirds majority would mean getting the support of 163 members. So how will NDA with 68 members in the Rajya Sabha get a constitutional amendment which needs the support of 163 members passed?

Rathi and Desai make a huge leap of faith here. As they write: "Currently, BJP and its allies have 60 seats in the Upper House, and, along with parties supporting GST, there are 97 votes in favour of the bill. This count increases to 110 by the end of July with the upcoming retirements...In the first scenario, all members participate in voting. The BJP and its allies see their seat membership increase to 110 from 97 seats. There are another 44 members that are currently supporting the bill. Supporting votes add up to 154. There are another nine who are neutral at this point and could swing either way. If the government can garner support from these members, then getting to the 163 vote mark becomes likely by July 2016."

QED.

One of the parties which Rathi and Desai list as supporting the BJP on GST is AIADMK. The party currently has 12 members in the Rajya Sabha. The Kotak analysts expects the party to continue to have 12 members even after July 2016.

Further, the AIADMK is against the GST. As AIADMK leader A. Navaneethakrishnan said in November 2015: "The GST in its present form will have a huge impact on the fiscal autonomy of States and the revenue loss it is likely to cause to Tamil Nadu will be considerable."

Also, the party's main leader J Jayalalitha is known to be mercurial.

Rathi and Desai also list Samajwadi Party as one of the supporters of the GST Bill. The party currently has 15 seats in the Rajya Sabha. This is expected to rise to 19 by July 2016. Samajwadi Party is the biggest party in the Rajya Sabha after Congress and the BJP.

Does the Samajwadi Party actually support GST? As Akhilesh Yadav said in early December 2015: "Without thinking much, anyone is expressing support to GST Bill in the parliament. State would be at loss."

The analysts also assume that the Peoples Democratic Party (PDP) of Kashmir is in the NDA camp when it comes to GST. If that was the case, why haven't the BJP and the PDP been able to form a government in Jammu and Kashmir, after the death of the chief minister and PDP leader, Mufti Mohammed Sayeed.

Also, the state finance minister Haseeb Drabu has spoken against GST in the past. As he had said in May 2015: "Jammu and Kashmir is unlikely to implement GST regime as it compromises its special position.... J&K is the only state that has the authority to legislate on all taxes and this will go with the new GST regime."

Given this, I really don't know how Rathi and Desai have assumed that AIADMK, PDP and SP are supporting the NDA on GST. Also, the assumption here is that the Congress party will keep sitting and not do anything about the BJP led NDA trying to get other parties in favour of GST.

Further, the Morgan Stanley analysts write: "In the second scenario, the INC (i.e., 67 current Upper House members) abstains from voting, and then the government needs 123 votes. In this situation, the bill can even pass during the second part of the budget session, between April and May. By April, we think the BJP and parties supportive of the bill will have 107 seats. in Rajya Sabha; they need another 16 seats to get the votes in the favour of the bill, which are already available to them."

This is a politically naive assumption which has been made to arrive at the conclusion that the NDA will get the numbers to get the GST Bill passed. Why would the Congress party give a walkover to the NDA? Beats me.

Further, the report does not take into account the state assembly elections which are due to happen in April and May 2016. The counting for four assembly elections (Assam, West Bengal, Tamil Nadu and Assam) and one union territory election (Puducherry) will happen on May 19.

The results of these elections will also have an impact on whether political parties will continue to support the BJP in its bid to get the GST Bill passed in the Rajya Sabha. If the BJP performs well (i.e. it wins in Assam, does well in West Bengal and manages to open its account in Kerala) the hawa will be in its favour.

If it doesn't do well, the hawa will go against it. In this scenario, many small political parties who are in the 'supporting' camp may decide to desert it. Even if the BJP does well, some parties might still want to stay away, in order to portray that they are not giving in, to the BJP. This is something that cannot be known in advance.

Once these factors are taken into account it is safe to say that there are way too many holes in Morgan Stanley's prediction of the BJP led NDA being able to get the GST Bill passed in July 2016. It's a nice story, but on the current evidence, it doesn't seem plausible.

Vivek Kaul is the Editor of the Diary and The Vivek Kaul Letter. Vivek is a writer who has worked at senior positions with the Daily News and Analysis (DNA) and The Economic Times, in the past. He is the author of the Easy Money trilogy. The latest book in the trilogy Easy Money: The Greatest Ponzi Scheme Ever and How It Is Set to Destroy the Global Financial System was published in March 2015. The books were bestsellers on Amazon. His writing has also appeared in The Times of India, The Hindu, The Hindu Business Line, Business World, Business Today, India Today, Business Standard, Forbes India, Deccan Chronicle, The Asian Age, Mutual Fund Insight, Wealth Insight, Swarajya, Bangalore Mirror among others.

Disclaimer: The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

Recent Articles

Trump Takes a Beating August 18, 2017
Donald J Trump, a wrasslin' fan, took a 'Holy Sh*t!' blow on Tuesday.
Which Gods Will Bring Down the US Empire? August 17, 2017
Mr Trump is in the White House and the gods are in their heavens; what's not to like?
Will They Haul Off Trump's Statue, Too? August 16, 2017
All across the country, the old gods become devils. New, gluten-free gods take their places...
Farm Loan Waivers: Why Bad Economics Makes for Good Politics August 14, 2017
It is because the negative effects of the waivers aren't clearly visible.

Equitymaster requests your view! Post a comment on "Wheels of Rajya Saba May Not Turn As Fast As Morgan Stanley Expects Them To". Click here!

4 Responses to "Wheels of Rajya Saba May Not Turn As Fast As Morgan Stanley Expects Them To"

amitabh

Mar 9, 2016

Brilliant see through!!! The problem with investment bankers is they need to breath life into past investments lest they become redundant. I can draw analogy from the medical profession i.e senior most doctors can at best elongate the date if demise through brilliant medicines which require more investment from the patients yet the end result remains the same !!! Its exactly the same case with best if investment bankers !! Pardon me but the moment anyone analysis the commentary since general elections the answer is written on the wall

Like 

P V Samuel

Mar 9, 2016

I quite agree with the analysis of the Rajya Sabha scenario by Mr Vivek Kaul

Like 

Kishan Sharma

Mar 9, 2016

This is an irrelevant, political comment not expected from an economic analyst.The writer should instead have enlightened his readers about the positives, negatives of and nuances in the GST Bill as presented in the Parliament and the specific objections of the opposition; and how GST is going to be good or detrimental to India as a whole; and how the states are going to gain or lose.This article is a disappointment for an intelligent and politically aware reader.

Like (1)

Rajan Ghotgalkar

Mar 9, 2016

Your analysis and conclusion are both right on the dot.
The earliest the NDA could have majority is in the latter
half of their next term in Parliament. Hopefully they get
a simple majority in the lower house again - failing which
the GST will stay on display.
If the NDA loses next term, it will be their term to act on
all the advice they have given the UPA in this term!
The UPA may help with the legislation in the last year of this Parliament Term in the hope that, all economic benefits accrue to itself whilst they aspire to win the next elections - which may not be as easy because the NDA will still have done far better than the UPA especially in the last term ( for whatever reasons).
So the market may have to wait till 2018/19/20 to benefit from these reforms - Morgan Stanley may be merely attempting to keep buying interest alive in the meanwhile!!

Like (1)
  
Equitymaster requests your view! Post a comment on "Wheels of Rajya Saba May Not Turn As Fast As Morgan Stanley Expects Them To". Click here!