When voting began in Indian parliamentary elections Apr. 7, Narendra Modi, chief minister of Gujarat, was expected to lead his Hindu-nationalist Bharatiya Janata Party to victory. What wasn't expected was the landslide evident when voting ceased May 12. The BJP won 282 seats in Lok Sabha, the lower house. That's 10 seats more than an absolute majority. The National Democratic Alliance, the coalition led by the BJP, won 334 seats. The Indian National Congress Party, led by Rahul Gandhi, won only 44 seats. Congress has governed India since independence in 1947 except for 1998-2004 and 16 days in 1996, when the BJP led coalition governments. This time, the BJP won't need to form a coalition.
The question now is how Modi will use this historic mandate for however long he keeps it. Indian voters clearly want relief from economic lethargy of the past few years and from the systemic corruption for which India is notorious. They also crave solutions to daunting social problems. Infrastructure lags far behind the needs of 1.26 billion people, one third of whom are desperately poor. Where should a leader with a mandate to reform start?
Oil, gas reform
Although the Indian oil and gas industry isn't a headline target for change, its liberalization could yield quick benefits. Among other things, reform would revitalize investment and help the country meet its urgent and expanding energy needs.
The industry now functions in a haze between the central control of the past and the genuinely free enterprise to which it and the government supposedly aspire. India has a few private oil companies. They include the oil and gas divisions of conglomerates Reliance Industries Ltd. and Essar Group as well as Cairn India, a subsidiary based near New Delhi of Vedanta Resources of London. But the government owns controlling interests in India's biggest oil and gas companies, such as Oil & Natural Gas Corp. Ltd., Oil India Ltd., and Indian Oil Corp. Ltd.
Called public-sector undertakings, India's state-owned oil and gas companies employ skilled technicians and well-educated managers. But the specter of government forever haunts their halls. PSU investments above specified levels require official approval. And the companies must struggle with a politically sensitive system of price ceilings for key products and inconsistent subsidies.
Bureaucracy hinders work by all companies in India. Operators holding production-sharing contracts from the Directorate General of Hydrocarbons, part of the Ministry of Petroleum and Natural Gas, often find operations resisted by other sectors of government, especially the military. Resolution of these conflicts can take a long time.
In fact, everything having to do with the Indian government—including oil and gas PSUs—takes a long time, especially in periods of political tension. For example, a group led by RIL and including BP and Niko Resources this month issued a notice of arbitration seeking a price increase to which they say they're entitled for natural gas from deepwater fields in the Bay of Bengal. The group expected the increase, under an agreement replacing arms-length pricing provided by the production-sharing contract, on Apr. 1. With an election looming, the government didn't act.
Chronic corruption
Corruption, meanwhile, remains a chronic disease for Indian businesses—especially controversial ones like oil and gas. As a political issue, it's disruptive enough to create economic chills. The exposure in 2011 of improprieties in telecommunications licensing weakened the government of outgoing Congress Party Prime Minister Manmohan Singh. Other scandals, of no doubt varying substance, followed. The climate for business, still tethered as most of it is to the government, suffered.
India's problems are larger than any single industry. Among them, however, growth in demand for energy—which will accelerate if Modi fulfills his economic promises—is huge. Oil and gas companies face ever-growing pressure to produce, process, and import hydrocarbon energy. Their abilities to perform would improve greatly if they were free to compete instead of forced, as they are now, to act as tools of the state.
