Report card on reforms amidst general elections
India has an urgent need for renewed vitality around economic reforms
As its second term concludes, the Modi government has been far less vigorous in pursuing economic reforms than in its first term, based both on the Center for Strategic and International Studies (CSIS) India Chair “India Reforms Scorecard” as well as foreign investment relaxations. While India’s economy generally continues to become more open to trade and investment over time, there is much work to be done to stoke job creation and economic opportunity. The forthcoming third edition of our India Reforms Scorecard will capture some of the big ideas and track their progress over the next five years.
Around election time, many chambers of commerce, business groups, economists, and academics produce their list of dream reforms the government should consider adopting. New mandates and long windows before future national elections bring hope. Often, such lists are snapshots in time, with little attention paid after a few months. These lists may be based on narrow interests. Or they may be indicative of the narrow understanding of reform by the author.
Ten years ago, my team at CSIS improved the model. Through literature reviews, surveys, and in-person workshops, we crafted our original India Reforms Scorecard in May 2014, highlighting 30 high-impact reforms the new government should consider. We update the scorecard monthly, allowing us to track the pace of reforms over time. We produced a new list of 30 reforms five years ago through a similar process. And we are now in the final stage of creating another list of 30 reforms which we will unveil after the election results are announced on June 4, 2024.
Using this tool, it is evident that the Modi government was more reform-oriented during its first term in office. Of the 30 reforms we tracked, the government completed nine, and partially-completed another 15 reforms. Most of the completed reforms came in the first half of the five-year term.
During its second term in office, the Modi government was only able to complete six of the 30 reforms we tracked. And the government partially-completed another five reforms. When raising this data, Covid-19 is often listed as the reason for the slower pace of reforms. In reality, most of the big reforms the government did during its second term came in the midst of the pandemic, in 2020 and 2021 such as relaxing labour regulations, ending retrospective taxation, passing the Major Port Authorities Bill, and lifting foreign investment restrictions in sensitive sectors like defence and insurance.
Our process is not perfect, of course. Our list of 30 reforms is static throughout a government’s five-year term, so it will not capture reforms that are not part of our initial list, such as the recent liberalisation of foreign investment regulations governing the space sector. The scorecard focuses on issues that will help India’s investment environment, so India’s new trade agreements are not included either though we recognise such agreements should boost India’s economy.
The slow pace of reforms also holds true when looking at the government of India’s formal notifications on the relaxation of foreign direct investment (FDI) restrictions, or legislative amendments in the case of the insurance and pension sectors. As evidenced by the chart below, the Modi government pushed far more FDI relaxations than its direct predecessors. But this term has seen far fewer FDI reforms than its direct predecessors with only 12 sectoral relaxations. This, despite the fact that nearly 40 sectors still have foreign investment limitations, or regulations that specifically impair foreign-invested firms.
Whichever party or coalition wins India’s current national election, it can do a lot to stoke the economy. As noted here, India retains foreign investment restrictions in nearly 40 sectors. The Goods and Services Tax (GST) remains incomplete, with several major sectors excluded from its ambit. The government can, hopefully, do more to improve access to basic services like electric power and water, even if these sectors are primarily controlled by state governments. The same can be said for India’s land acquisition process, which remains an obstacle to some large-scale investments. Reducing import restrictions on raw materials and intermediate goods in priority sectors would help large original equipment manufacturers (OEMs) establish major operations in India. Or adopting a more coherent and process-oriented mechanism for new business regulations—including a cost-benefit analysis—would reduce investor anxiety about frequent, poorly-planned regulatory changes.
In the coming month, we will see where our process leads in building our new list of 30 reforms. Many will likely be recycled from the prior list since few of the reforms from our 2019-2024 version were completed. But there are always new ideas and new sectors. With a pandemic just behind us and increasing concerns about over-reliance on China as a base of manufacturing, India has a unique moment in time to try to win a major share of new investments.
Richard M Rossow is the Chair in US-India Policy Studies at the Center for Strategic and International Studies (CSIS), Washington, DC. Previous versions of the India Reforms Scorecard at https://indiareforms.csis.org/. The views expressed are personal
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