The government should remain confident about the moral correctness and economic efficacy of reforms. It will require liberalising measures.


A good thing about Prime Minister Narendra Modi’s second term is that there is at least some talk to resuscitate economic reforms. For it needs nothing less than resuscitation, which must start right away.

The reforms received a severe blow when the communists came back into reckoning in 2004; they were politically relevant only for four years, but they laid down enough landmines in the economy to trip any liberalising move in the future. Then there was a bunch of salon socialists, professional revolutionaries, green militants, and sundry activists who were legitimised because of their proximity to the Left-leaning Congress president and United Progressive Alliance chairperson Sonia Gandhi. A National Advisory Council (NAC), which she headed and which they infested, came into being, and thus began a jihad against prudence, free economy and common sense. Reforms stopped, even reversed in some cases.

The consequences of socialism are well-known all over the world—corruption, arrested economic development, joblessness, general resentment. UPA rule was no exception. Against that backdrop, Modi, with his pro-business image, made a good impression among India Inc. Sadly, no substantive reforms were carried out in his first term; emphasis was on welfare measures—or, to be precise, in their effective execution. He and his administration were remarkably successful in that, as evident from the massive mandate that he got from the electorate, more impressive than that of 2014.

To be fair to Modi, it must be said that he did not come up with structural, revenue-guzzling populist programmes like the national Rural Employment Guarantee Scheme started at the behest of the National Advisory Council (NAC). Building toilets in and providing gas cylinders to rural households haven’t cost the exchequer much; this is also the reason that the fiscal deficit, though not as low as one would have desired, is under control.

It is time not just the fiscal deficit was cut drastically, but also major reforms were carried out in earnest. That would be much tougher than winning elections, for here Modi has to fight not just the Opposition, which is inconsequential anyway, but also sell the reforms to the people. Even that may not be very difficult; the bigger problem lies with the saffron outfits that are ideologically opposed to liberalization in general.

The Labour Ministry has already started working on a new Bill for reforms, to be presented in the upcoming Budget session of Parliament. The new Modi government wants to subsume 44 labour laws into four codes pertaining to wages, industrial safety and welfare, social security, and industrial relations. After a meeting of the Group of Ministers on the subject, Labour Minister Santosh Gangwar told the media, “We will bring new labour law Bill in the upcoming session; all labour unions have been consulted on this.”

That may be true, but the RSS-affiliated union, Bharatiya Mazdoor Sangh (BMS), has slammed the proposed Bill. It is against the proposed dismantling of the older social security schemes like the Employees’ State Insurance and the Employees’ Provident Fund. The BMS is steadfastly against the hire-and-fire system that labour reforms are intended to usher in. On the face of it, this system appears terribly anti-worker, but in reality it is urgently required, for it gives impetus to employment generation.

And then, of course, there are the Reds. Tapan Das, general secretary of the CPM-linked CITU, has already threatened to oppose the labour reforms “on the ground, even if they might push it through Parliament”. That may not just be rhetoric; the Left is on the verge of extinction; it has to do something spectacular to keep afloat; mass resistance against labour reforms may give it the much-needed oxygen.

It is not just liberalization in labour that the trade unions and others, could jeopardise; there are many other vested interests that would be uneasy with any meaningful change in the economy. Privatisation, for instance.

The government is said to be looking for the privatisation of not just sick public sector undertakings (PSUs) like Air India and Scooters India, but also profit-making PSUs. The Niti Aayog, which earlier prepared a list of loss-incurring state-run companies, may be asked to identify profitable PSUs to be privatised. So far, so good.

In the past—that is, when Atal Bihari Vajpayee was Prime Minister—the sale of PSUs was resisted by, among others, administrative ministries. With an assertive Prime Minister’s Office monitoring privatisation, the ministries may not be a road block in the foreseeable future, but there are also other forces. Apart from trade unions, there are corporate interests that get affected. Naresh Goyal of Jet Airways was able to torpedo the sale of Air India earlier; he is out of the picture now, but there are others, many of them politically connected. The Modi government has to be prepared for such situations.

And last, but not the least, there would be jibes like “suit-boot ki sarkar”. The government should remain confident about the moral correctness and economic efficacy of reforms. It will require not just liberalising measures—which any pro-reforms economist can suggest—but also the top leadership’s confidence in these measures. For the successful implementation of reforms would be predicated upon political will and tact.

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