One of the largest foreign institutional investor Morgan Stanley believes the Bharatiya Janata Party (BJP)-led government will have adequate number of Member of Parliament (MP) to pass the GST (Goods and Service Tax Bill), bill by July 2016.
GST, arguably country’s biggest reform in two decades, is in a limbo since 2015 due to lack of support by the Indian National Congress (INC). Even though the BJP has a majority in the Parliament’s Lower House, it lacks the votes required to pass the bill in the Upper House. Stock market investors are keenly awaiting the passage of bill, which they believe could improve India’s GDP numbers significantly.
The key to the bill’s passage is a reduction in the number of Upper House members opposing the bill. That number currently stands at 91 and it needs to fall to 82 for the bill to clear.
“We forecast that to happen by July 2016,” Morgan Stanley’s analysts Ridham Desai and Sheela Rathi said in recent report to clients.
To pass the bill, the government needs the higher of 50% of the Upper House (123 out of 245 votes) and two-thirds of members of the Upper House present and voting (163 votes in a full house). Thus, not more than 82 members can oppose the bill if all are present and voting.
Currently against the bill are 91 upper house members, including 67 INC legislators. Between March and July, 75 members are scheduled to retire from the House – changes to Upper House membership are fixed since these changes depend on the current composition of the state assemblies and, thus, representation is changing in favor of the government.
“We calculate that the BJP will gain two seats, the INC will lose seven, and the BJP gain another seven via newly nominated members in the Upper House (a prerogative vested with the government of the day). The net result of this and gains by BJP allies increases the number of those supporting the bill, from 97 to 110, and decreases those opposing to 81,” Morgan Stanley said.
Why Morgan Stanley thinks the proportion of members supporting the bill will increase to two-thirds?
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. We assume the following scenarios that raise the vote in favor of the bill to two-thirds of the total members present and voting.
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.
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 favor of the bill, which are already available to them.
In the third scenario, the BJP and the INC agree to pass the bill as their disputes about the bill are resolved.
“The second and third scenario can play out anytime from the start of the budget session this week. A persistently gridlocked parliament, or members of parliament who currently support the bill but change their mind, are risks to our views,” Morgan Stanley report said.
Once the bill clears Parliament, getting the bill passed by more than half of the states should not prove challenging, as the BJP and its allies are currently in power in 12 of 29 states, and a few beyond the 12 are supportive of the bill.