To turn crisis into opportunity, India needs a reform playbook reboot

India must revisit how reforms are designed, executed and shared between the Centre and states, if it wants to seize the global moment and boost long-term economic growth

Thanks largely to the recent tariff initiatives of US President Donald Trump, there has been a resurgence of interest among India’s economic policy experts to discuss how New Delhi should respond to the emerging challenges. This renewed interest is not just to examine how one should negotiate easier trading terms with the US or consider joining plurilateral trading arrangements and concluding free-trade agreements with regions like the European Union (EU). It is also aimed at reviewing what kind of economic reforms India should be expediting to possibly convert the looming crisis into an opportunity for stepping up its growth momentum.

 

A long list of reforms has begun doing the rounds among policy experts, industry bodies, and think tanks. The argument is that the government should now be focused on these reforms, which could help the Indian economy weather the economic storm in a world where Mr Trump’s tariff regime is certain to slow down global trade, pull down growth rates in most countries, and even drive the US into a recession. If the fiscal and balance of payments crisis that India faced in 1991 could trigger far-reaching liberalisation across various sectors over three decades ago, 2025 could be viewed as not very different and used as an occasion to usher in the much-anticipated second-generation reforms.

 

Slashing tariffs that India has been imposing on its imports has understandably topped the list of reform actions. These tariffs began rising from 2018 onwards, and only in the past year or so, one has seen a reduction in import duties on a few items. Obviously, more should be done and policy experts are right in stressing the need for speeding up the pace of such import duty rationalisation and reduction. There is also a suggestion that the Indian government must quickly conclude its trade agreement with the US and the EU, talks for which appear to have made good progress. In addition, the government could explore the idea of joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership or CPTPP.

 

Experts have also underlined the need for fresh reforms in taxation and the financial sector, initiatives for which have already been undertaken through the Budget that was presented by Finance Minister Nirmala Sitharaman in February 2025. Among other areas where the need for deeper reforms have been highlighted are relaxation in the legislation for land and labour, reinstating the rolled-back laws on agriculture, increasing investments in research and development in the farm sector, power reforms — particularly at the distribution end — urban policy changes, tweaking the bilateral investment treaties to make them more investor-friendly, implementing the privatisation policy, and revamping the judicial system to expedite legal redress of grievances.

 

Those tracking India’s economic reforms over the last three decades will find that there is virtually nothing new in this wish list for changes in economic policies to usher in higher and sustainable growth. Policy experts, including even those within the government, have been talking about these very changes for decades, but the pace of such changes or even the implementation of new policies (like the plan for privatisation or streamlined labour laws) has been excruciatingly slow.

 

What stands out against the backdrop of such general indifference to the urgently needed second-generation reforms is the government’s commitment to fiscal consolidation. Not only has the Centre’s fiscal deficit been reduced and the quality of expenditure improved, but a new debt-anchored programme of deficit reduction is now in place. The latest move on raising excise duty on petrol and diesel (and forcing the oil marketers to absorb the impact of the higher tax burden) along with an increase in cooking gas prices shows that the government is in no mood to loosen its purse strings unnecessarily. Instead of falling prey to the temptation of providing fiscal sops to sectors that might be hurt by a slowing economy, the government has so far been resolute in its commitment to the fiscal consolidation path outlined in the Budget.

 

But more relevant and important than just outlining these second-generation reforms is to understand how these changes in economic policies could be implemented without any disruption. The experience of the last three decades shows that more than focusing on what needs to be reformed, it will be useful to outline a strategy that sheds light on how these reforms can be implemented. In retrospect, it appears that the process followed by different governments over the past three decades needs an overhaul. In this regard, three process-related areas need urgent attention.

 

One, the need for an expert committee to examine the pros and cons of a reform idea can hardly be overemphasised. The success of reforming the taxation policies, the financial sector and the insurance sector in the 1990s depended on the constitution of committees, headed by domain experts outside the government system. These committees submitted detailed reports, which the government made public and allowed public consultation over their recommendations. Decisions on how those reforms were to be structured and implemented were then taken based on such consultations. It is time the government went back to that template of expert committees providing the platform for making policy reforms.

 

Two, reforming the sectors, as outlined by policy experts in the last few weeks, should be preceded by a reform of the civil services. This is a task that was taken up by the Narendra Modi government in its first term. But in subsequent terms, this has not received due attention, despite the fact that successful implementation of reforms needs a band of bureaucrats who not only have domain expertise but are also committed to giving advice to the political leadership freely and without fear.

 

In its third term, the Modi government did try to induct domain experts from the private sector into different ministries. This initiative, however, was abandoned mid-way. Instead, there is now a preponderance of senior or retired civil servants heading most regulatory bodies. Reforms can be better implemented if policymaking divisions in the government are separated from those who are entrusted with the responsibility of implementing them.

 

Three, the responsibility of second-generation reforms in India should rest not just on the Centre, but also on the governments of 28 states and eight Union Territories. Indeed, many of the sectors, where reforms are needed, fall under the domain of both the Centre and the states.  Since the abolition of the Planning Commission, the states have yet to get a proper platform where their voices on reforms or governance could be considered before their implementation. The Inter-State Council has met only once in the last 11 years, and just twice in the previous 10 years. The experiment of the Goods and Services Tax (GST) Council raises hope that such bodies — with representation from the Centre and the states — could be set up in other sectors where urgent economic reforms are needed.

 

There is no denying that India urgently needs faster implementation of second-generation reforms. But before making any big announcements, the government would do well to get the process of implementing them right by paying heed to the need for views from experts, a civil service with rich domain expertise, and a more vibrant Centre-state institutional apparatus.