PM Narendra Modi with Finance Minister Nirmala Sitharaman | File photo: ANI
PM Narendra Modi with Finance Minister Nirmala Sitharaman | File photo: ANI
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The biggest and the oldest buzzword in post-1991 India is ‘Big Bang reforms’. Journalists, industrialists and economists — everyone uses it. The wait has been so long that with every Union Budget comes the expectation that the government will initiate deep, structural second-generation reforms, because 1991 was mostly about getting over the East India Company complex and allowing foreign investment.

From Manmohan Singh to P. Chidambaram, Jaswant Singh, Yashwant Sinha and Arun Jaitley, this expectation has been repeatedly betrayed. Even finance minister Nirmala Sitharaman could not satisfy the clamour for Big Bang reforms, the massive electoral mandate for Narendra Modi in 2019 notwithstanding.

It took a pandemic, that plunged and paralysed global economy not seen since the great recession, for India to reform its most politically stubborn policies. Go figure.

Amid rising unemployment and lockdown, tens of thousands of migrant workers fleeing cities and growth projected to contract to 1.9 per cent, the widespread demand was for a generous fiscal stimulus and money in people’s pockets. But that’s when the Narendra Modi government decided to unleash Big Bang reforms instead.

From barrier-free agricultural trade to freeing farmers’ access to markets, hiking FDI limit to 74 per cent in defence production, changing the definition of MSMEs, to coal and mineral mining reforms. This, in addition to labour law changes in Uttar Pradesh and Madhya Pradesh that was unimaginable just a year ago.

These are long pending, highly contested reform measures in critical sectors. Why waste a crisis?

Modi said precisely this in his address to the nation on 12 May. The message of the pandemic, he said, was to change crisis into opportunity.


Also read: It’s time our expectations got real — there could be an economic tsunami around the corner


Crisis call for change

In fact, India has kept up its practice of boldly reforming only in periods of crisis, when it has its back to the wall.

In his book Accidental India: A History of The Nation’s Passage Through Crisis and Change, author Shankkar Aiyar cites game-changing policies from the Green Revolution to the 1991 liberalisation as the accidental consequences of crisis, not foresight and careful planning.

Adversities have always proved to be quantum-leap moments for Indian policymaking. Big economic decisions are taken when we feel the country has run out of options.

This is actually counter-intuitive.

Bold structural reforms should ideally take place when the economy is going strong. That is when it can withstand the jolts and disruptions. But in India, when the economy is performing well, leaders are often busy playing redistributive politics. But here’s why crisis is their chosen platform. It is during times of extreme adversity that reforms can be pushed through without political opposition or discussion.

For example, today, no opposition party has threatened agitation against the planned privatisation and labour law changes. And reforming at a time of crisis puts you so far ahead that it becomes irreversible.

But sudden changes lack consensus, are unrolled with little preparation, and can even have unintended consequences. It can consolidate the opposition into forcing you to make concessions elsewhere, years later — like the Communist parties did in the Manmohan Singh-led government. Another fallout is that because you have implemented changes without conviction or consensus, you always appear guilty in India’s political culture and end up over-compensating for years to come.


Also read: Is boosting liquidity enough or should govt put money in people’s hands to spur demand?


Hands-tied decision

The 1991 opening up of the economy was propelled by a debilitating balance-of-payment crisis. Atal Bihari Vajpayee’s government initiated strategic sales of PSUs such as ITDC hotels, VSNL, UTI and Modern Bread at a time when India was suffering severe US sanctions due to the 1998 nuclear tests and global condemnation.

And now, with the Modi government’s hands tied with the Covid-affected economy, Nirmala Sitharaman’s bold measures will generate impressive headlines.

She also said that companies reporting debt during the Covid period will not be considered defaulters, no insolvency process will be initiated for a year and some offences by businesses will be now decriminalised.

Companies can also list their securities in foreign lands, and private businesses will be allowed to operate in more areas that were earlier reserved only for the public sector.

These will be huge confidence boosters for investors and will bear fruit in three to five years, if implemented right.


Also read: FM’s package: ‘Boost’, ‘booster’, ‘big bang’ for dailies & Telegraph’s ‘dirtiest word’


A whole new world

It is more or less clear that the Narendra Modi government’s twin strategies now to deal with the Covid-battered economy are liquidity support and structural reform, not boosting demand.

The government just doesn’t have the fiscal elbow room to address the immediate need to put money in people’s hands to boost consumption — something that Congress party’s Rahul Gandhi also demanded.

But the government had entered the pandemic with a high fiscal deficit situation already, as Morgan Stanley’s Ruchir Sharma said. That limited its ability to open the purse. So reforms in the ‘holy cow’ sectors appear to be the easier thing to do for Modi, especially because no Lok Sabha election is around the corner.

Until now, Modi’s priority was always politics. He showed more audacity for controversial moves like diluting Article 370 in Kashmir and bringing in the Citizenship (Amendment) Act, than business-friendly reform measures like land acquisition law, which he retreated from.

But now India is standing at the cusp of transformational possibility. As Western companies prepare to look beyond China, and US President Donald Trump threatens to call off ties with Beijing — India is smelling a never-before opportunity to transform the country into a factory for the world and give Make-in-India the real push.

Last month, former RBI governor Raghuram Rajan wrote: “It is said India reforms only in crisis,” and added that he hoped “the otherwise unmitigated tragedy” of Covid-19 will help India see the need for economic reforms.

And, it now appears, Modi may have read it too.

Views are personal.

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7 Comments Share Your Views

7 COMMENTS

  1. POLITICIANS are crazy set of guys and dolls. They reflect all that is inhuman, all the deficiencies that 21st century evolution regrets having as baggage carry overs. But what to do? We are not in the grips of self actualization but basic needs like physiological, social and power compulsions. We are in this matrix. We cannot see beyond at this stag of our evolution.
    And in India the politicians are more risk conscious cowards too because the Indian Masnad is a powerful EGO incentive.
    Modi is no exception. He is human, not a Winston Churchill. He does not know but his ‘hilariously serious’ TV shows are worth a Bachaan for me.
    Let us see what happens-at least those of us who survive beyond next 3 – 5 years here.

  2. Thank God for the crisis then, perhaps. Imagine no covid 19, no crisis: what was Nirmala Sitharaman’s budget. A damp squib. Post-covid -economic- package she towers over the likes of Chidambaram, Jaswant, Yashwant, Shourie, Jaitley and even perhaps the redoubtable Man Mohan.

    No matter. Let’s say a big thank you to the lady. Citizens must thank their leaders if they do good, even under duress.

    Now we come to the tough part. Translating all the good intentions into reality. If demonetization is anything to go by Modiji you will loose 2024 for sure if this package goes the same way. So this time hunker down, plan well and deep, see the implementation happens really and all intended benefits accrue to the intended. Animal spirits in the rural side specially do actually get unleashed. Heads should be made to roll if they interfere. Let the administration work freely. Punish any failure. If you and the administration under you succeed you shall count as the greatest Indian PM very likely. If you fail you shall be another unlamented PM ever afterward.

  3. Yes at last. This is the time to go for Big-Bang Reforms. Very good analysis & reflects a positive outlook.
    Thanks
    Nagesh Rao

  4. This gives the government of the day a free pass. When two crore jobs a year were promised, a doubling of farmers’s incomes in five years, everyone understood that required a change of direction. MGMG in a poor country was shorthand for economic reforms to the extent this can be spelt out in an election campaign. Six years have idled by. Make in India has been repackaged as Aatma Nirbharta, which I struggle to understand as much as the South Indian columnist does. If people can be put through agony like Demonetisation, now this Great Trek home, the political costs of economy wide structural reforms, thoughtfully designed and spaced out in order that they do not cause undue disruption, would have been manageable.

    • “If people can be put through agony like Demonetisation, now this Great Trek home,” then only they are to blame! As Markandey Katju has said in his recent column, 90% of thee same people would vote for Modi and his candidates government! He writes: “Lies don’t matter to Indian voters. When it comes to voting, most (probably 90 per cent) people in India vote on the basis of caste and religion. They do not see whether the candidate is good or bad, educated or uneducated, or whether s/he has any criminal antecedents (a large number of MPs and MLAs have criminal backgrounds). And the voters certainly do not consider whether the candidate, or the leader of the party s/he belongs to, is a liar. All that India’s 90 per cent voters see is which caste/religion the party represents.” And New York Times in its recent column has also said that, “Recent opinion polls show that in the past few months Mr. Modi’s already high approval ratings have soared even higher, touching 80, even 90 percent. Unlike two of the populist leaders to whom he is often compared, President Trump and President Vladimir V. Putin of Russia, Mr. Modi seems to be thriving in this crisis.” So it is obvious people like what Modi is doing, the Demonetisation, now this Great Trek home” notwithstanding!

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