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Modi faces GST battle with emboldened rivals

NEW DELHI — After a string of setbacks, Indian Prime Minister Narendra Modi has a month to get his reform plan back on track.

NEW DELHI — After a string of setbacks, Indian Prime Minister Narendra Modi has a month to get his reform plan back on track.

A parliamentary session that began yesterday will show investors whether he can finally push through a goods-and-services tax (GST) that has been repeatedly blocked by opponents.

While Mr Modi this month took steps to boost foreign investment and infrastructure spending, the GST has become a bellwether for progress.

“The real test for the government will be if it can pass a national value-added tax, which markets consider to be a game changer, in the face of an emboldened opposition,” JPMorgan Chase analysis, led by Mr Bruce Kasman, wrote in a Nov 20 note. “Failure to do so is likely to have material consequences for the domestic market and business sentiment.”

Mr Modi could use a big win after a rough few months: His party got trounced in a key state election, his fiscal deficit goal is under threat and credit growth remains stuck near a 20-year low. India’s stocks and currency were among Asia’s worst-performing over the past month.

The GST would help reverse the tide. The tax, one of India’s biggest reforms since the 1990s, aims to whittle down more than a dozen state levies to create a single market among the country’s 1.2 billion people for the first time.

It won’t be easy to cross the finish line. Mr Modi’s opponents, in disarray after he took office last year with the biggest Indian mandate in 30 years, united to defeat him in Bihar, one of the country’s most populous states. That made it more unlikely that Mr Modi would take control of Parliament’s Upper House anytime soon.

“It seems highly unlikely that the major reforms will get enacted by the Upper House of the Indian Parliament, where the ruling coalition is in the minority,” Mr Vikas Halan, a vice-president and senior credit officer at Moody’s Investors Service, said in a statement.

“Failure to implement these reforms could hamper investment amid weak global growth,” he said.

The Prime Minister’s adversaries repeatedly disrupted the last parliamentary session in August, making it the least productive since he took power.

They have fresh ammunition after a mob lynched a Muslim man for allegedly killing a cow, sparking a nationwide debate over whether Modi’s Hindu-dominant party was turning India into a hostile place for religious minorities.

“The opposition has lots of issues to hit the government, put it on the mat, embarrass it, make it look weak and unproductive,” said Mr Arati Jerath, a New Delhi-based author who has written about Indian politics for about three decades. “Political issues will dominate the session, and it will upset the economic Bills.”

Finance Minister Arun Jaitley said this month that he has enough support to pass the GST if only government opponents allow a vote. He has also signalled some room for compromise.

The main opposition Congress party wants the GST rate capped at 18 per cent and no additional 1 per cent tax on goods crossing the border of producing states.

Those changes would please business groups but make it harder for the constitutional amendment to be approved by more than half of India’s 29 states.

Ahead of the winter session of Parliament, which runs through to Dec 23, the Congress party appears ready to fight.

“The arrogance and obduracy of Prime Minister Narendra Modi and Jaitley are the biggest roadblocks in passing the GST bill,” said Mr Randeep Singh Surjewala, a Congress spokesman. BLOOMBERG

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