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.
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.
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.
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.