Yashwant Sinha: How to Navigate a Tricky Parliament

Sinha illustrates the consensus-building approach he adopted to get three important legislations passed.

As is well known, the Atal Bihari Vajpayee government, which came to power in March 1998, was a coalition government of many parties. It lost power in April 1999 because one of its coalition partners, the AIADMK, withdrew support and the vote of confidence moved by Prime Minister Vajpayee was defeated by one vote in the Lok Sabha. The government, however, was voted back to power in the elections held in September/October 1999 and lasted its full term on the strength of a stable majority in Lok Sabha, though it was woefully short of it in the Rajya Sabha.

Even in the Lok Sabha, the support of the allies could not be taken for granted, especially on economic issues which were unpopular. It was in such conditions that those of us charged with the responsibility of economic management in the government had to find our way. It was not easy, especially for legislation where we needed the support of parties in the Opposition in the Rajya Sabha. A consensus building approach, therefore, became a sine qua non for success.

Banking on State Govts For Reform

The state governments added a further dimension to it because their support was also essential on some issues. The state governments belonged to diverse political parties and were not always friendly towards the central government.

Many important economic reforms like the introduction of Value Added Tax at the state level, reforms relating to the marketing of agricultural produce, the amendments to the Essential Commodities Act and the adoption of the Fiscal Responsibility and Budget Management Act depended on the goodwill and support of the state governments.

Dissent on the part of a single state could unravel the entire exercise.  

The Budget — consisting of the demands for grants, the Appropriation Bills and the Finance Bill — was the least of the problems. Such financial business has never been held up in the Lok Sabha and all political parties have cooperated in passing these bills. In fact, in 1999, the entire Budget was passed without discussion by both Houses of Parliament even after the government had lost the vote of confidence.

This year too, the entire Budget was passed in both Houses, even in the din, because nobody was seriously interested in holding up the bills.

The real problem lay in the passage of the other essential legislation. I shall deal with a few to illustrate the difficulties I encountered despite the consensus-building approach I adopted in such cases.

Hurdles Encountered in Passage of Legislations

The first test came when I was piloting the Insurance Bill.

P Chidambaram had brought a similar bill to Parliament in 1997 but the partners in his own government had opposed the bill in the Lok Sabha and he was compelled to withdraw it. The BJP’s stated position on the liberalisation of the insurance sector was that while we were in favour of the private sector entering the insurance field, we were not in favour of foreign capital.

When I joined the Ministry of Finance and started discussing this issue with the officials and others, I was convinced that allowing a minority stake to foreign capital would be useful for the sector. I prepared a bill accordingly and took it to the Cabinet.

I faced my first hurdle at this point.

Most ministers were opposed to foreign capital in the insurance sector and the bill was about to be rejected.  

Prime Minister Vajpayee intervened and saved the day by forming a Group of Ministers under Jaswant Singh to examine the matter further.

This Group held only one meeting and cleared the proposal with the only rider that while the foreign investor would be able to take his profits and dividends abroad, he would not be allowed to take the premium money abroad and that money would be invested in India. The Cabinet then approved the proposal in one of its subsequent meetings.

I faced my second hurdle while introducing the Insurance Regulatory and Development Authority Bill in Parliament.

The Left parties and some others challenged the Constitutional validity of the bill and opposed its introduction. It was with some difficulty that I was able to introduce the bill.

After introduction, the bill was referred to the Standing Committee on Finance headed by my good friend Murli Deora of the Congress. He was a liberal and fully aligned with my line of thinking. We were regularly in touch when the bill was under consideration of the committee. Fortunately, Murli Deora was able to carry the committee with him and submitted the report to Parliament before the Lok Sabha was dissolved in 1999.

I took up the threads once again when I returned to the finance ministry after the elections. The bill came up for consideration in Parliament during the winter session of 1999.

Here I faced my third hurdle.

The Congress insisted that foreign equity in the insurance companies should not exceed 26 percent. My proposal was to peg it at 49 percent. No amount of persuasion would make them budge from this position. I had no choice except to accept their proposal in order to get the bill passed in the Rajya Sabha. The bill was passed by Parliament with this amendment and the insurance sector was finally liberalised.

Similarly, the proposal to replace the Foreign Exchange Regulation Act (FERA) with the Foreign Exchange Management Act (FEMA) was pending in government since Manmohan Singh’s days in the finance ministry. I took it up in right earnest and we decided to replace it with two bills: The Foreign Exchange Management Bill and the Prevention of Money Laundering Bill. Both the bills were passed in the Lok Sabha but when I took the bills to the Rajya Sabha, some leading members of the House opposed certain provisions of the Prevention of Money Laundering Bill and demanded that it be referred to a Select Committee of the Rajya Sabha.

I saw merit in their argument and agreed to their proposal. The Select Committee recommended some amendments to the bill which I accepted and the bill was passed by the Rajya Sabha and later by the Lok Sabha once again with the fresh amendments.

The third important bill was the Fiscal Responsibility and the Budget Management Bill which was also referred to the Standing Committee on Finance after introduction. Shivraj Patil of the Congress was the chairman of the committee. He was not in favour of some of the stringent provisions of the bill about controlling fiscal deficit.

The recommendations of the Standing Committee made this important bill quite toothless.  

But since it was not possible to have our way all the way, we accepted the recommendations of the standing committee and proceeded with the passage of the bill. The bill was passed when Jaswant Singh became finance minister and was notified by the United Progressive Alliance government in 2004. In this case, however, the pursuit of consensus killed the bill and it has remained largely a dead letter.

Many other important pieces of legislation were passed when I was finance minister and form the basis on which banking, capital markets, taxation, competition, the non-banking finance companies and various other sectors on the economy function in our country today. Many of them were passed without the aches and pains I had experienced while moving these three bills.

I am specially mentioning these three bills to show how difficult it is to get important legislation passed by Parliament when the government does not have a majority in both Houses of Parliament.

But perhaps that is the way the framers of our Constitution wanted parliamentary democracy to function in our country; not on the basis of a brute majority but largely on the basis of consensus.

(The story was originally published on Bloomberg Quint and has been republished with permission. The opinion piece has been written by Yashwant Sinha who was India’s Finance Minister from 1998 to 2002 and External Affairs Minister from 2002 to 2004. The views expressed here are those of the author’s and do not necessarily represent the views of BloombergQuint or its editorial team.)