Reforms, more than A7-letter buzzword

India‘s economic reforms have undergone a paradigm shift during the two terms of the Narendra Modi-led government. The focus has changed from a market-centric approach to a project-centric one. The big interventions since 2014 have been in improving welfare delivery, creating a common market, addressing a bad loan crisis, pushing digital transactions, providing incentives to local manufacturing and accelerating infrastructure build-up. These are considered to be achievements for this government. There is another list, not quite triumphant but vital nevertheless for economic transformation, that this government has had a mixed record with. These constitute efforts to free factor markets like land, labour and agricultural output as also a withdrawal of the government from financial markets. Admittedly, the second list represents deeper liberalisation and is exposed to more entrenched opposition.

So, what makes for reforms? As an ET Awards Jury meeting debated earlier this week, reforms need to be judged from a distance of time for their full transformative effects. As a corollary, reforms also need to be judged for completeness. By the first yardstick, GoI‘s project-centric reforms are showing up in output, be that welfare delivery, tax revenue or corporate investment capacity. Outcomes, however, are less clear. Transfer payments are yet to show up in education and healthcare numbers. Stronger banks are still awaiting credit demand from companies. Manufacturing incentives are not yet seeding local supply chains.

Most of this will happen over time. But the completeness test for reforms can be cleared only after factor markets are freed. Labour reforms, for instance, are in place for a manufacturing take-off. Yet, land and energy markets remain rigid. The state can create necessary conditions for economic efficiency, but the sufficient condition is to be derived in the market. Administratively driven changes themselves are constrained by administrative reforms. The Indian economy has gained from this government’s pragmatic approach to productivity but awaits deeper reforms to unlock its potential.