One may wonder whether the overly cautious Economic Survey and the Union Budget have been overtaken by events, especially the “grandmother of all deals” with the US. That would be a mistake, for the Survey’s key pieces of advice, which have been taken seriously in the Budget, remain as valid as before. We cannot jump from caution to euphoria in seven days, which is our national tendency.
But deal or no deal, India has its work cut out in a world in which not only geopolitical rupture, but multilateral trade and supply chains are also going to be rejigged, making protection of India’s interests more challenging. Our potential for failure is more internal than external, as we have a calcified system that is not only resistant to change, but often opposed to it.
Consider just the trade deals. Assuming we have to make them work, and our own tariffs and non-tariff barriers are going down to zero in many areas, the task of preparing our businesses to compete effectively for export and domestic market share is daunting. Both the government and bureaucracy, including the Customs administration, need to work to make this happen.
We could still end up being vassals to the big global companies, as licensing and import-driven domestic growth become easier for many companies as India cuts tariffs — as has happened with cheap Chinese imports. This is where the Survey’s observations on driving domestic innovation and making businesses competitive are paramount. The Survey noted that “the Indian private sector, historically risk-averse and comfortable with technology licensing or import, has failed to step up as the primary engine of R&D…The global technology landscape is bifurcating…and India cannot afford to be a client state.”
The stock markets and the rupee may, in a knee-jerk reaction, revive for a few days, but the underlying risks and stumbling blocks remain. The Survey wondered why India’s macroeconomic stability is not good enough to attract large flows of investment. Portfolio investors have been voting with their feet, and other evidence suggests that many wealthy Indians are moving to destinations like Dubai. There is clearly a lot we must do to set our house right.
The Reform Express may sound like an Express to us, who are used to slow speeds of change, but in a dramatically shifting external environment it is a bullock-cart that ambles along. We must get the core message of the Survey right. The survey calls for an “all-of-society” approach to get reforms done faster, because hard reforms need all stakeholders to accept the reality of change, from governments (both Centre and states), to the bureaucracy, businesses, trade unions, farmers and households in general.
The job of getting all of society to work together means politics needs to move beyond electoral considerations. It means the government must get opposition parties, state governments, businesses (both big and small), and the ordinary citizen to work towards a common goal, making some sacrifices if needed. This is a process that has to begin with an enlightened political understanding of the leadership’s role in this change.
There are a few things that the Modi government must work on immediately.
First, communication. Reforms are no longer only about legislation and policy changes; various stakeholders need to be brought into the loop. This means opening lines of communication to prepare them for what lies ahead. This communication must begin within government, which means that both the senior and lower levels of ministries and the bureaucracy must know what is expected of them if government is to become an enabler rather than a disabler of business. The tax and enforcement arms must be spoken to sternly.
Second, monitoring and support. When change comes at gale speed, there will be winners and losers. Unless the losers are identified early and helped to make the necessary transition, they will become speed-breakers. Even winners need help, for early success means they must be enabled to scale up.
Third, asking before deciding. The government must ask questions of business and the wealthy, so that it can formulate the right policies and support systems for growth and innovation. For example, why did the tax cuts of 2019 and other tax reforms not ignite an avalanche of investments by India Inc? Why isn’t business investing in research & development, and especially those businesses that have huge hoards of cash, from information technology (IT) services companies to those run by the Ambanis, Adanis, Tatas, Birlas, Mahindras, and others? Why are the new millionaires moving to new tax and living jurisdictions? Is it because of the perception that there is too much victimisation by tax or enforcement officials, or is it just the everyday pain of dealing with an extractive state apparatus?
Fourth, states and local bodies. State governments, and especially those headed by non-National Democratic Alliance parties, must be part of the new reform consensus. The conversation can begin at the national level, but must move to the states and sub-state actors involved in governance. The BJP-ruled states are not necessarily doing much better just because they operate under a “double-engine” illusion. If the Opposition has its grouses, why are BJP-ruled states not gung-ho about reforms? Why are they not letting their urban areas grow by investing in water, roads, and sewage infrastructure? If urban governance is going to be key to growth, why are our cities so badly governed?
Fifth, there must be multiple conversations with our micro, small and medium enterprises (MSMEs), especially at the state and local body levels, to make sure their lives are free from over-regulation. The creation of an “entrepreneurial state”, as the Survey recommends, means we cannot have debilitating and extractive officials operating in the system when MSMEs are key to not only jobs, but also the successful creation of competitive supply chains that can then feed the big boys.
Sixth, we must never forget agriculture, the most unreformed area in India. After the Modi government was forced to withdraw the three farm reform laws in 2021, it has focused on trying to work around the issue by encouraging the creation of farmer producer organisations (FPOs), giving specific support to fisheries and animal husbandry, and promoting high-value agri-products like coconut, cocoa, and cashew (this Budget). But it has to engage with small, medium and large farmers, too, and wean them off the idea that minimum support prices (MSPs) are the cure for all the farm sector’s ills. MSPs are needed, but they are not the solution. The government should not wait till the next time farmers congregate at the borders of Delhi to start talking.
If headwinds have to be turned to tailwinds, as the Survey suggests, these are the kinds of politico-economic conversations and dialogues with stakeholders that must be instituted before actual reforms are implemented. It can’t be done by Budgets or trade deals alone. The real work begins after these things get done.
The author is a senior journalist
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