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Ahead of another critical Covid-era general budget and an upcoming series of state elections, noted economy & political commentator Swaminathan Aiyar said the very fate of reforms in India likely hangs on which way the UP verdict goes.

"A lot of liberals like me might be very happy to see BJP lose the UP elections, but from the point of view of the economy, a bad BJP loss would mean a sudden squeeze or sudden slowdown in the entire reform process and that would not be good for the economy," said Aiyar in an interview to ET Now.

As it is, reforms have already been kind of relegated to the backburner following the major fiasco on the farm laws. Aiyar notes that after being badly bitten by the farmers agitation, Modi govt itself wants to go easy and slow on reforms. While the three farm laws were the most visible casualties, other reform measures including monetisation and the four labour laws will suffer too, he says.

Aiyar says that a lot hinges on the UP outcome: if BJP does well, it will be a vindication that the farm protests didn't reflect the general mood and so, the govt will double down on reforms. It will bode well for the fate of the entire pending reform pipeline. And India needs this to happen, because a govt must learn to look beyond protests that any privatisation brings in its wake, he notes.

If, on the other hand, the BJP loses or does badly in UP, it will lead to panic in government circles regarding the unpopularity of reforms, Aiyar says. That will send a lot of negative signals to the government, and at a time when there already is a lot of sloth in the monetisation process, such signals will wreck the reform agenda, he adds.

Bad signals from UP will likely stall the already sputtering monetisation of assets, leaving the govt with no realistic chance of meeting its target, Aiyar notes. "The national monetisation pipeline is supposed to get lakhs of crores of rupees within a few years. Will that really happen with this kind of slowdown of reforms," he asks.

As an example, Aiyar cites the UP electricity reform case. It may be recalled here that attempts to reform the UP power sector a while ago had led to a serious loss of face for the authorities there. As soon as official announcements were made, the electricity staff ganged up and threatened to shut down the entire state, following which the government had to beat an ignominious retreat. This, when New Delhi's stated official power policy is all about privatising discoms.

After the UP lesson, the BJP is moving very cautiously even in places that are under its rule, such as Puducherry and Chandigarh, Aiyar observed. All this means the reform process will without doubt be in danger if BJP suffers a serious defeat in UP, and will get a boost if the party has a good victory, he added.

He said the UP poll outcome will be more important than the budget in deciding the economy's road ahead. With the budget coming after the polls, the budgetary announcements will depend on which way UP goes, he said, adding that budget & UP polls together constitute the big picture at the moment.

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A BJP loss in UP will be bad news for economy even if it makes liberals happy, says Swaminathan Aiyar - Economic Times