Avoiding reform

Two years in, major reforms seem off the table

The two-year anniversary of the Narendra Modi-led National Democratic Alliance government has been something of an extravaganza. And, certainly, given the decent macroeconomic indicators and signs of green shoots in the economy, the government has something to celebrate. But there was a mismatch between the over-the-top tone of the publicity blitz and the relatively limited ambitions of the government with regard to future policy reforms. That these ambitions were indeed limited was helpfully spelled out by the government's leaders, including the prime minister and the finance minister. For reform-minded observers there is thus, in the midst of the celebration, a hint of disquiet.

This disquiet has many sources, but three policy areas that were commented on stand out. The first is labour law reform. In speaking to the Wall Street Journal, the prime minister declared that "hire-and-fire" was "a Western concept", and that labour law reform should be in the interest of labour and not just employers. According to reports, Finance Minister Arun Jaitley separately indicated that "unanimity" was needed for labour law reform, and that such reforms were not essential for industrial growth. Since unanimity is never likely for structural transformation, it appears that India is condemned to remain with central labour regulation that stifles industry - for, whatever Mr Jaitley may argue, it is clear that places with more dynamic labour laws do better, and that a large source of India's lack of competitiveness globally is its lack of flexibility in the labour market.

Then there is the question of land acquisition. While there may be many opinions as to exactly what the best design of a land acquisition law might be, there is little doubt in many minds that the current law has problems, and may be too bureaucratic. But the prime minister has effectively taken land law reform off the table by saying to the Journal that "it is over now". He has indicated that the Centre will permit state laws to go ahead, but that is, once again, not the same thing as creating an all-India template that makes it easier to do business.

Finally, there is the question of privatisation. While the government's record on disinvestment can certainly be defended - though it has consistently missed targets - its record on shrinking the public sector is distinctly poorer. Mr Modi, in his interview, has launched an energetic defence of public sector units, and said that you cannot suddenly put an end to them. On theoretical grounds, there may be much to what Mr Modi says, and if the government wishes, the public sector will have a role to play. But it also means that the privatisation of white elephants like the state airline and telecommunications companies is unlikely to happen. These are not cheering signs. Thus celebrations should perhaps be tempered with a touch of recognition of how many major reforms are being avoided or taken off the table.