Economic reforms are best done brick by boring brick

The accepted conventional wisdom is that economic reforms in India happen only in a crisis or by stealth. The big example of the former is the 1991 reforms, when the country faced a huge foreign exchange crisis, resulting partly from the fiscal profligacy of the previous decade. Another example is from 1999 when the telecom sector was in near bankruptcy, and that crisis led to the shift away from fixed fee for spectrum to revenue sharing. In both cases, there was considerable opposition to those reforms, but they were pushed through because the crisis left no other choice. Otherwise, more often than not, it has been economic reform by stealth. These are introduced without fanfare, often in the form of an executive decision rather than legislation. For instance, the expansion of the list of items under the Open General Licence for imports, which is a reform of protectionism, or the reduction in the set of industries reserved for small-scale businesses. A more recent example of a contentious reform was the insertion of an electoral bond scheme in the Finance Bill of 2018. There was hardly any debate. Reform by stealth offers the advantage of going in either direction. In 2013, faced with a potential currency crisis, the Reserve Bank of India (RBI) quietly retracted the limits on the liberalized remittance scheme (LRS), a reversal of an earlier step towards capital account convertibility, the journey towards which was also characterised by stealth. We might as well accept that India will never have reforms backed by conviction or ideology. Mostly, the moves are reluctantly made and the resistance is from industry or trade unions, not politicians.Read More