The history of India’s economic reforms can at best be described patchy, lacking the consistency and depth that investors, domestic and global, would find attractive and sustained. Although more than two decades have passed since 1991, when the ‘first-generation reform measures’ began, the process remains incomplete. Reasons for this are obvious: compulsions of coalition politics have constrained the appetite of governments to embrace hard reforms that go beyond the contours of political expediency.
Analysts are unanimous that some of these first-generation reforms related to factor and product markets, if implemented, could potentially change the ‘India story’, but have remained sceptic about the country’s ability to build political consensus in their favour. It is, therefore, pointed out that India is unlikely to bite the reform bullet unless and until pushed to the wall. Hence, reforms can be expected when a growth slowdown persists.
Having grown at an average 8.5% and above for eight years since 2003-04, the economy slowed down considerably in the last three years, dipping below the 5% level. Expectedly, this should have provided an ideal opportunity to revisit the menu list of reform measures left unaddressed, stimulating debate to build political consensus on some of the key issues. Unfortunately, though, we have managed to deflect our attention away from these first-generation reforms towards issues termed as ‘policy paralysis’ resulting from poor governance.
Summarily, in the current context, ‘policy paralysis’ refers to government failure in timely project clearances, mostly related to infrastructure and stalled on land acquisition, environment and forest right issues. The perception that has gained currency is that if these projects are cleared somehow, all else remaining the same, growth would begin to rebound. Unsurprising, then, that the present government spent considerable time and effort to build institutional mechanisms like the Cabinet Committee on Investment (CCI) and Project Monitoring Group (PMG) to get things back on track. Initial successes are often flagged by way of number of projects cleared, amount of investment unclogged, etc, creating a perception that investment revival could soon begin.
Is this perception correct? Will mere pending project clearances restart the growth engine? Speaking in broader terms, is governance reform all that a new government needs to focus upon to return the economy back to an 8% growth path? A careful analysis of the current economic environment, domestic and global, indicates the chorus-like focus upon ‘policy paralysis’ is rather narrow in scope and that governance reform may turn