As India starts its parliamentary session on Tuesday, hopes are at a low ebb that the business-friendly laws central to Prime Minister Modi's lofty reform agenda will gain traction.
The ruling Bharatiya Janata Party (BJP) intends to discuss three contentious bills—land acquisition, a goods and services (GST) tax and a revision of labor laws—at the three-week long meeting, commonly referred to as the monsoon session since it coincides with the start of annual rainfalls.
All three pieces of legislation are meant to bolster Modi's courtship of foreign investment and enhance the overall ease of doing business in India, but fervid opposition from rival parties and recent political scandals will likely see lawmakers continue bickering instead, resulting in a washout session.
The first week will likely be the rowdiest as opposition members demand the resignations of BJP ministers currently embroiled in corruption scandals, explained Pratima Singh, senior research analyst for South Asia, at Frontier Strategy Group (FSG). Once that's resolved, the session can move onto economic issues during the second and third week, she 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," warned DBS economist Radhika Rao in a Monday note.
The land acquisition bill is perhaps the biggest catalyst to increasing investment, but economists say it's the least likely of the three to be discussed.
The bill would remove a clause that requires consent from 80 percent of landowners if their land is sought for industrial projects—a change the opposition believes is against the interests of farmers. Their complaints won't be taken lightly given the rising number of bankruptcy-driven farmer suicides.
"This is the most crucial measure, but it's seen as anti-agriculture," said Faraz Syed, associate economist at Moody's Analytics. "The bill will be going through other committees and get tweaked in order to make it more bi-partisan, making it unlikely to come through this year."
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The GST is another key plank in Modi's agenda.
Widely regarded as a game changer for India, it's set to simplify the country's complex tax structure, often cited as a key hindrance to foreign direct investment. While it's the least controversial measure of the three, politicians disagree on factors like the exact rate, the exemption list and additional levies.
"The rival Congress party was also pushing for it when they were in power, but now they are afraid that the rate will be too high," FSG's Singh said, noting that the rate remains undisclosed, but is likely to be around 20-25 percent. The tax is unlikely to pass before the fourth quarter of 2016 or early 2017, well past the government's April 2016 target date, according to FSG.
There may also be state-level opposition. "State governments are also concerned over potential loss in revenues and have sought full compensation for the first five years of the rollout," added Rao of DBS.
Modi's agenda also aims to revise labor laws.
That's essentially a move to boost productivity, noted Singh. Companies currently need government approval for hiring or firing more than 100 workers, and the government wants to increase that cap, but unions are concerned that more flexibility in termination will hurt workers' rights, she said.
Low inflation combined with the Reserve Bank of India's monetary easing bias have offset disappointment over the implementation of Modi's reform agenda in recent months, but there will be a tipping point where the government has to deliver on its promises, noted Syed of Moody's Analytics.
"In the medium to long-term, India's business climate will suffer if these reforms aren't delivered, but for now, foreign exchange reserves are high and Indian equities have been rallying, suggesting that investors are pricing in lower risks when U.S. monetary policy starts to tighten," Syed said.
Multinational companies (MNCs) are in wait-and-see mode, said FSG, noting that the mood remains more optimistic domestically. For MNCs already in the country, 44 percent are making a case to increase investment on the hope that reforms will finally get underway, according to a June survey, the research group said.