Waiting for the states

The future of key economic reforms seems to depend more on the states

Last week, a senior government official made a reassuring comment about the need for states to be focused on the pending economic policy agenda that should help India achieve economic growth of seven to eight per cent on a sustainable basis. The official also listed a few areas where reform measures needed to be undertaken in the coming months to improve the ease of doing business and attract more investment. 

This statement was reassuring because it came at a time when governments, instead of outlining the urgent reforms that should be undertaken after the general elections, are busy announcing sops and new projects. Such a statement was also not entirely unexpected because India’s political economy is such that elected representatives of the government are more inclined to announcing measures that can win votes, particularly in the run-up to a general election.

Sadly enough, economic reforms rarely win votes. Therefore, in such a situation, statements on the need for reforms, even when they come from officials, are a source of comfort in the belief that not all is lost regarding the need for making the Indian economy more productive and efficient.

Of course, announcing new infrastructure projects or increasing subsidies is relatively easy and electorally far more rewarding for governments as they prepare to face elections. Yet, nobody can deny the importance of governments formulating an action plan for major policy reforms that they must implement after the elections. Indeed, Prime Minister Narendra Modi has asked all the ministries to submit their 100-day action plan to be implemented after the elections. 

Hopefully, these action plans will be less about new schemes and projects and more about reform

ing and restructuring processes to make them transparent, rule-based and non-discretionary so that the economy becomes more competitive and efficient. The role of government in businesses (read privatisation) is also an area where the 100-day action plan can make a substantial impact. So, what kind of reforms in economic policy can one expect in those 100-day action plans to be implemented by the new government formed after the elections in April and May?

To begin with, reforms of land, labour and agriculture laws must receive immediate priority. To be fair, the Modi government did try to bring about necessary reforms in all three areas but failed to make progress. Within a year of its formation in 2014, it tried to relax the rules for acquisition of land for setting up industries and infrastructure projects by making the compensation amount more attractive and the process simpler. The Modi government was supremely confident of securing the consent of political parties. However, so strong was the resistance from political parties, even from sections within the ruling party, and so serious were the charges of the government having developed a cosy relationship with industry that the Modi government decided to give a quiet burial to its land acquisition ordinance. Since then, the plan to amend the land acquisition laws has not been revived, and the Centre now appears to be expecting the states to amend their respective land acquisition laws.

In its second term, the Modi government undertook two major initiatives that failed to make much headway. To usher in labour law reforms, the Modi government used its majority in the Lok Sabha to secure the conversion of as many as 29 central labour laws into four codes — the Code on Wages 2019, the Code on Social Security 2020, the Occupational Safety, Health and Working Conditions Code 2020 and the Industrial Relations Code 2020. That was a major move as the codes not only made the labour laws simpler but also easier to enforce, although workers’ representatives were not happy with many of those provisions. But so far, there is no immediate hope of a nationwide rollout of these codes, along with the notification of the rules under them.

Note that labour is on the Concurrent List of the Indian Constitution, which allows both the Centre and the states to frame laws in this sector. The Modi government has strived hard to persuade states and workers’ unions to agree to the four labour codes. As many as 31 states have already pre-published the draft rules under the Code on Wages, 28 states have done so under both the Industrial Relations Code and the Code on Social Security, and 26 states have done the same under the Occupational Safety Health and Working Conditions Code. What is stalling a national rollout of these four labour codes is perhaps the refusal of trade unions to accept all the new provisions of the new law. Can the states make a breakthrough in this area?

Something similar happened with agricultural reforms that were introduced by the Modi government in 2020. Three ordinances were promulgated in June 2020 during the economic lockdown after the first wave of Covid and were converted into laws when Parliament approved them three months later. The three laws sought to achieve three fundamental changes in the framework governing Indian agriculture. The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020, categorised the entire area outside the mandis across the country as a trade area to provide an ecosystem for trade outside these mandis. The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020, provided a framework for contract farming agreements between farmers and buyer entities. The Essential Commodities (Amendment) Act, 2020, exempted certain agricultural commodities from the purview of the Act and restricted its applicability only in case of extraordinary circumstances, including an abnormal increase or a fall in prices of these commodities.

However, a prolonged farmers’ agitation, mainly in western Uttar Pradesh, Haryana and Punjab, demanded the repeal of these laws and a legal guarantee for providing minimum support prices (MSP) for all agricultural commodities. In December 2021, ahead of elections in Uttar Pradesh and Punjab in early 2022, the Modi government reviewed its stance and agreed to repeal these laws. This was yet another political climbdown by the ruling party as far as key economic reforms are concerned. In 2024, farmers have once again begun agitating for a legal guarantee for MSP for all their produce.

In such a situation, the likelihood of agricultural reforms being brought back on the table appears remote. Perhaps agricultural reforms, too, could be pushed to the states’ court, and, as in the case of land and labour laws, the states might be expected to initiate farm law changes as well. After all, agriculture too falls under the State List of the Constitution, even though some agriculture-related items are placed in the Union List and Concurrent List.