Last Modified: Wed, Aug 17 2016. 03 55 AM IST
Recent set of reforms are important institutional changes for the long run
Narendra Modi needs to start working on the next set of reforms that may get executed only after 2019. Illustration: Jayachandran/Mint
No Narendra Modi speech is complete without a spattering of alliterative tricks, rhetorical flourishes and strange acronyms that would make a management consultant proud. These are admired and mocked in equal measure.
During his speech from the ramparts of the Red Fort on Monday, the prime minister said that his mantra was to “reform, perform and transform”. He gave an impressive list of achievements to back his claim. For example, easier access to government services, faster approvals of new business enterprises, reducing the stranglehold of middlemen over the appointment of new entrants into government jobs at the lower levels, less harassment of taxpayers by officials, and much more.
This was Modi at his best. His ability as a good administrator is widely recognized. His personal popularity has also given him the political capital to take tough decisions rather than compulsively pander to electoral populism. All but his worst critics will agree that corruption at the very pinnacle of government has been curtailed. In other words, a lot of the focus has been—in terms of the mantra to reform, perform and transform—on performance.
There has been less confidence about the ability of the Modi government to reform—not to work more efficiently within the existing rules of the game but to actually alter the rules of the game. Yet, the record on this front actually looks far better than six months ago, and has perhaps not been adequately appreciated. Since the beginning of the year, the Modi government has pushed through several landmark changes that can be game-changers.
First, the new monetary policy framework legally binds Indian monetary policy to a formal inflation target. Second, the passage of the Aadhaar Bill creates a unique opportunity to ensure that welfare schemes reach the people they are meant to help. Third, the bankruptcy law deals with what has been called the problem of capitalism without exit. Fourth, the introduction of a goods and services tax will radically overhaul the indirect tax system, make it less distortionary and help create a common market across the country. Fifth, a committee has begun work on a new fiscal law that should reduce the perverse tendency of running a pro-cyclical fiscal policy.
These are significant achievements. Some of them do not fit in with the idea of big-bang reforms that the stock markets love or business interests lobby for. They do not have the sex appeal of a tax cut or an increase in foreign investment limits. What we have seen in recent months are important institutional changes whose impact will be truly felt in the long run. They can alter the dynamics of economic growth, macroeconomic policy and the welfare system.
There is a problem, however. A lot of the preparatory work for these legal reforms began under the previous regime led by Manmohan Singh. The baton was then passed to the current government.
There is nothing wrong in such continuity. Deep institutional change needs long years of work that spans multiple regimes. Even the terms of reference for the 14th Finance Commission were set before Modi became prime minister. The National Democratic Alliance has shown maturity in staying the course, despite some early doubts in the case of Aadhaar.
What now? Modi needs to get his public policy advisers to work on the next set of reforms that may eventually see the light of day only after 2019. These include financial sector reforms, liberalizing the factor markets, getting the education system back on track, deep fiscal reforms that create space for a massive increase in the supply of public goods, and lots more. There is also the need to build state capacity. The groundwork for the road ahead has to begin soon.
How does Modi’s reforms scorecard look today? Tell us at views@livemint.com
