Economic policymakers in the Union government appear to be on a high. The recent notification of the four Labour Codes, passed by Parliament more than five years ago, is perhaps the most immediate reason for coming to such a conclusion. Of course, the gazetting of the much-awaited Labour Codes, subsuming 29 existing labour laws after their simplification and rationalisation, is a reasonable justification for believing that the Narendra Modi government has become a little more reform-friendly than in the past.
But the change in the government’s engagement with the economy’s need for reforms is more nuanced than how analysts have so far perceived it. What happened with the Labour Codes last week is also a reflection of a changed equation between India’s political economy and the pace of its economic reforms. This shift has been gradual, beginning soon after the Modi government was formed for its third five-year term in June 2024. Its contours and character were not immediately noticeable. But they are becoming obvious when you look back at the many decisions that the government took over the past 17 months.
About two months after its formation, the Narendra Modi government took a big step to fill several senior positions in different Union ministries with candidates from outside the government system. A notice inviting applications for 45 posts under the government’s lateral-entry scheme was issued on 17 August in 2024. But two days later, the notice was withdrawn after political opposition to the idea gained momentum both within and outside the government. That notice was not just withdrawn, but the entire idea of strengthening the civil service by inducting private sector talent was buried. It was a setback for reforms, sending the message that the government did not wish to undertake any reforms that could upset the civil servants.
Things changed somewhat later in the same month. The Union Cabinet approved a proposal to launch the Unified Pension Scheme (UPS) to provide government employees an alternative to the National Pension System, which had come under attack in many states for not offering a guaranteed pension, and the demand for junking it grew roots. UPS, in contrast, offered a guaranteed pension equivalent to 50 per cent of the average monthly salary drawn in the last year of service, but modified many other eligibility terms to reduce its impact on the exchequer.
It was initially feared that the UPS would also face political resistance and would not be able to address the concerns of government employees. But those fears proved to be unfounded. There were many factors at play. The decision on UPS was welcomed by the Congress president and other senior party functionaries. Mr Modi met with a delegation from the Joint Consultative Machinery for Central government employees soon after the Cabinet meeting approving the UPS. That delegation welcomed the move to provide an assured pension for employees. National trade unions kept quiet, and its rollout from April 2025 has so far been smooth.
The option to switch from NPS to UPS was initially available to employees only for three months till the end of June 2025. It has since been extended twice and the last date for exercising that option is now the end of this month. But most central government employees have stayed under the NPS, with only about 100,000 of the 2.3 million employees opting for the UPS as of the end of September 2025. Only Maharashtra as a state opted for the UPS, while most other states on NPS have not made any change. The last date by when employees could switch over from NPS to UPS may be extended again, but what appeared to be a major political issue has been handled with little political resistance and limited fiscal cost.
The last 17 months have also seen a gradual deferment of and pushback against schemes that are protectionist by nature. This is in addition to the finance ministry-led rationalisation of many import duties that has been undertaken as part of what seems to be an ongoing exercise. In August 2023, the government had announced licensing curbs on the import of laptops, personal computers, tablets and computer servers. However, much to the relief of users and industry, the enforcement of these curbs has been deferred at least four times, with the latest extension till the end of December 2025. Given the current mood in the government, it is unlikely that the import management system will be enforced in the coming months. But the fact that such a scheme still exists, even though on paper, is a cause for concern.
The government’s approach to the idea of quality control orders (QCO) was a little more reassuring. Till recently, it had issued about 720 QCOs between 2016 and 2025. QCOs were originally conceived as a tool for ensuring quality standards in products that entered the country through imports. However, these became an easy tool for creating non-tariff barriers. Such a move also undermined the competitiveness of the domestic industry when QCOs were enforced on raw materials and intermediate products. Reflecting how the Modi government’s approach has changed in the last few months, a high-level official committee has recommended rolling back as many as 208 QCOs, all of which had been enforced on raw materials and intermediate products. Action on the QCO front has been quick. Already 69 QCOs have been suspended, raising the strong possibility that most such QCOs on raw materials and intermediate products would soon be withdrawn.
All these changes are taking place in an environment where the government has also made the taxation system a little more friendly. With annual income up to ~12 lakh already becoming effectively tax-free and a large-scale rationalisation of the goods and services tax (GST), along with easier registration of taxpayers, the new system has reduced the burden on people and businesses. The government has also succeeded in conveying a message that it is sharply focused on reforms that improve the ease of doing business.
What’s more important is that committees are now at work to simplify rules and regulations to make them less cumbersome. This has allowed more consultation before a policy action is announced. If the government has managed to introduce reforms in so many areas and roll back or defer the problematic schemes, it is largely because it has decided to engage with stakeholders through a committee-based approach. It is this aspect of the government’s political economy management that has given rise to a series of recent reform measures and raised expectations for more reforms in the coming months.
AK Bhattacharya is the Editorial Director, Business Standard. He tweets @AshokAkaybee. Views are personal.