Given the T20 nation that we are, it is no surprise that we are constantly keeping score. And so as we reach 100 days of the Modi-led government, questions are inevitably being asked: Have actions matched expectations? Why havent we seen big-bang reform?
Before we get into the acts of commission, I would argue acts of omission are equally important. Take, for example, the first Budget. Given the all-round impatience to jump-start growth that greeted the new government, there was a chorus of voices that urged the new government to relax the fiscal stance to boost growth. This would have been a dangerous gamble. It would have stoked aggregate demand, pressured core inflation, widened the CAD and threatened the hard-earned macro stability gains from the last two years. To its credit, the new government doubled-down on fiscal consolidation and didnt change course simply for the sake of change.
Why havent we seen big-bang reform, given the historic election result?, goes the common refrain. More fundamentally, how does one rationalise the governments gradualist approach?
For starters, much of the heavy-lifting (GST, labour laws, food inflation) involve the concurrent list, for which the Centre has to carry the states along, including the non-NDA ones. This does not lend itself to quick-fixes. Instead, it involves dogged give-and-take between the Centre and the states.
Even for issues that require only central legislative approval (for instance, FDI in insurance), the government lacks a majority in the Rajya Sabha and, thankfully, has chosen to build consensus rather than flex its political muscle by calling for a joint session at the moment. Again, a constraint that precludes big-bang.
More fundamentally, however, reforms involve winners and losers. Typically, losses are concentrated while benefits are dispersed. So, the losers tend to be better organised. The larger the adjustment costs that losers have to incur from reforms, the more the typical resistance to lobby for the status quo. So, big-bang reforms tend to be opposed vehemently, whereas incremental, but sustained, reformswhich may not necessarily excite equity markets, but take the sting out of the oppositionoften have the best chance of success.
Consider diesel prices vis-a-vis suburban rail tariffs and FDI in multi-brand retail. Diesel prices have gone up by 50 paise a month for 20 consecutive months, reducing the under-recovery by R10 a litre. What used to be considered a sacred cow is now business-as-usual. By moving in imperceptibly small doses,