As the government led by Prime Minister Narendra Modi completes its third year in office, there has been a flurry of commentary on the hits and misses of these three years. There have been many who have highlighted the achievements, there have been a few who have been critical while there have been some who have offered a more mixed analysis. However, there is one class of commentators who have taken a particular line of approach with regards to the present government and then have kept on regurgitating the same argument every few weeks, in articles and on social media. They utilized the third-year anniversary to again indulge in the same critique. And what is that critique – that there have been no reforms under the present government, and certainly there have been no ‘big-bang reforms’. But is this true? Or is this completely false? Or is the true picture somewhere in between?
One way to objectively investigate this, as opposed to subjective rhetoric, is to look at what actually would constitute a ‘big bang reform’ and then measure whether it has been done or not. However, the commentators who rue the so-called lack of reforms offer no easy way to measure their critique as most of them do not actually spell out what is a particular reform that has not been done. They just assert. So, I settled on a methodology of my own:
I decided to look at newspaper headlines of previous years to find out what had been considered ‘big bang’ in the past, if at all, and among those which reforms were pending at the time this government took over in May 2014 and whether there has been movement on them post 2014.
Consider this sentence from a December 2008 article in the Financial Express: “The UPAs biggest financial sector reform measure in its four-and-a-half year tenure, the Insurance Laws (Amendment) Bill, which seeks to hike the foreign direct investment limit in the sector to 49% from the existing 26%, was finally introduced in the Rajya Sabha on Monday full two years after it was originally sent to the Cabinet for approval.” So, insurance sectors reforms were considered to be the holy grail of big-bang reforms in 2008. Of course, the previous government led by Dr. Manmohan Singh could not do it till 2014. What is the status on increasing FDI in insurance sector under Modi government? – Done.
Or consider this sentence from an August 2012 article in the Economic Times: “Economists and policymakers have been urging the government to deregulate diesel prices”. So, deregulating diesel prices was considered to be a very important reform in 2012. Status under previous government till 2014 – not done. What is the status on Diesel pricing deregulation under Modi government? – Done.
If these two are not ‘big-bang’ enough, consider what else has been done since May 2014, in the first three years of the Modi government.
A) Commercial Coal Mining for private players: Since Indira Gandhi’s nationalization of coal mining in 1973, private commercial coal mining has been disallowed. No amount of reformist agendas in the past could convince the governments of the day to reconsider, what would clearly be a major reform and a big push to economic activity and indeed job creation, allowing private players. One suspects that even the big-bang reformers thought that this was way too bold a reform to even attempt? Status under Modi govt – Done.Online GST Certification Course by TaxGuru & MSME- Click here to Join
B) Defence Sector Reforms: A few years ago, these were just academic questions – should FDI be allowed in Defence sector, in most cases up to 100%? Should private entities be brought in as strategic partners for defence manufacturing? Status under Modi Govt -Done.
C) Construction sector reforms: This is one other reform that was on the radars of ambitious reformists but considered undoable. There is now up to 100% FDI allowed in this sector and the real estate regulator is now in place. The real estate sector is now also categorized as an industry thereby allowing it to access institutionalized loans at much lower interest rates.
D) Bankruptcy and Insolvency Code: That India should have a modern bankruptcy law was felt for more than a decade but there was little progress. Status under Modi Govt – Done.
E) Agricultural Sector Reforms: The agricultural market, that was fragmented through the APMCs, is now a unified national market through eNAM. As this story highlights, this single act of reforming the access to markets for the farmers has completely transformed the agricultural sector. It is no longer a buyers’ market, but a sellers’ market where the farmers can now sell their produce at the most competitive prices, anywhere in the country.
F) Labour Reforms: In many respects, this truly is the holy grail of reforms. It had become a ritual to mention the intent to do it in every budget between the years 2004-14, but never actually move ahead on it. The issue with what has come to be termed as labour reforms is that there is not one law or deregulation that has to be done, but that a host of measures that need to be taken. So, what has happened since 2014? Consider just two such reforms – the Sharm Suvidha Portal which now enables to file just one compliance report for more than 16 labor laws; and the amendment to Factories Act Bill 2016 which enhances quarterly over time working hours. Many states have reformed their own labor governing laws, complimenting the central government’s efforts.
G) Railways Reforms: This is one more such sector which was always a potential sector for reforms but never really got implemented. Now FDI is allowed up to 100% in many activities in Railways, apart from a host of other reforms.
H) Trade Reforms: Just consider one of the reforms done to facilitate easier trade – number of documents needed to trade has been reduced from 7 to 3 for exports and from 10 to 3 for imports. In addition to a host of other measures such as easier and assured access to electricity and faster regulatory clearances, the trade reforms have been a major factor in improving the ease of doing business rankings.
There has been a host of other measures taken by the government, which may not pass through the “reform’ lens of some of the advocates but which have had a deep and systematic impact on the economy. Using the JAM trinity and specifically the use of Aadhar for DBT, thereby weeding out leakages and fake beneficiaries of government subsidies is one such reform. A lament of all Indian leaders since the last 30 years, that the money allocated by the center does not actually reach the intended beneficiaries has finally been seen movement through legislation enabled technology. More than 49,000 crores have been saved through this one measure alone. Is that a reform or not?
Or consider the institutionalization of auctions for natural resources– be it coal or other minerals or spectrum. For the first time in two decades the allocation of such resources has not attracted even an iota of doubt on the transparency and the fairness of the process. Is that a reform or not that builds confidence for both the domestic as well the overseas investors?
Or consider that environmental clearances, that earlier used to take 600 days or more, and yet needed an ‘extra-constitutional tax’ to be paid, are now mandated to be cleared in just 180 days with no discretionary intervention. Or that Starts-ups can now register their company in one day. Or that the sword of retrospective taxation no longer hangs on the industries. Are these reforms or not?
And what about GST? A reform which has been variously described as the single biggest tax reform since independence? One of the principal reasons that many states were not willing to come on board for a Goods and Services Tax before 2014 is the lack of trust in the word of the central government. And there was a reason for this. When VAT was introduced many states had feared a loss in revenue. The then central government promised to compensate the state governments. But in practice it never did – the compensation kept on being postponed year after year in order to control the fiscal deficit, which had ballooned due to profligacy. So, the states obviously did not trust the same central government’s word when it said that it would compensate states that would suffer losses due to GST implementation! It is this relationship between the center and the states, among many others, that the Modi government changed. A pending liability, accumulated under a previous government, was fulfilled by this government. This restoration of trust in the centre’s word was what convinced the states to come on board. In as fractious a polity as today, the GST bills has been passed unanimously in Parliament, and all its rules and regulations and tax structures have been finalized with consensus in the GST council. The restoration of trust in the centre’s word– as a fair arbiter of national economic interest – and the creation of India’s first truly federal structure, the GST council, is in itself a big-bang reform of much greater salience than some of the other touted reforms. If the nation was politically integrated in 1947, the economic integration would be complete seventy years later – in 2017.
So why is it, despite such evidence, that some commentators persist with the line that economic reforms have not taken place? There can only be conjectures as to the reason for this but one hopes that the accumulated evidence of the last three years and the clearly communicated intent for the coming months would settle this debate once and for all.
(Akhilesh Mishra, former Director of MyGov India, is currently CEO of Bluekraft Digital Foundation.)
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