How reforms are building momentum for ‘India’s century’

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WHAT DOES the U-turn on the farm laws portend for the pace of reforms in the pipeline? From the performance of the seven-and-a-half years of the Narendra Modi-led NDA regime, would history judge Modi as a status quoist for having succumbed to repealing the contentious farm laws, or an incrementalist as a reformer? It is precisely the relentless pace of reforms that induced India’s economic revival to achieve a GDP growth upwards of 8.3 per cent during the most challenging year.

Political sagacity dictates that even progressive reforms, if perceived to be against the will of the majority stakeholders, are shelved, just as the land acquisition ordinance was allowed to lapse without much ado by the Modi government ahead of 2015 Bihar polls. Conversely, before introducing a major reform, marketing and effective communication skills are needed to sensitise stakeholders to its benefits.

The Indian agriculture sector constitutes the largest vote bank. It is exempt from paying income tax. A strong and affluent section has held to ransom the rest of the farming community who have holdings of less than one hectare. It was this affluent lobby that acted as saboteurs of the larger interests of their poorer brethren.

Antagonists see the repeal of the three farm laws as a mid-course reversal of the economic reform process, just as they felt the inability to pass the land reforms in 2015 would impede future reforms.

With the facts furnished below, it is for the reader to gauge whether, despite a lack of political consensus on progressive policies like land or agri reforms, the momentum of Modi’s reforms agenda has slackened. With the structural and social sector reforms implemented before 2020, and thereafter during the pandemic, this has been the start of a watershed period of reforms. These reforms will continue to scale up till the general election in 2024. Their effects would be as transformational as the 1991 reforms.

Just a few of the pathbreaking financial sector reforms that have been enacted in the seven-and-a-half years are: The cleaning up of the flawed banking system and the mounting NPAs through the enactment of the Insolvency and Bankruptcy Code. The IBC has since its enactment in 2016 helped recover Rs 2.5 trillion from corporate defaulters, yielding a recovery rate of 36 per cent as of June 2021. The government subsequently recapitalised banks and empowered debt recovery tribunals. A dedicated Stressed Asset Management Vertical was formed.

Post-Covid, the Centre began the process of unlocking infrastructure assets through its Asset Monetisation Programme, which will release substantial revenues. The Productivity Linked Incentive Scheme, with an outlay of Rs 1,97,000 crore, was rolled out to boost 14 sectors. Recently, work has started on Asia’s biggest airport in UP. After Air India’s privatisation, in the pipeline is the sale of BPCL and BEML, likely by March, along with the mega LIC initial public offering expected to list early next year.

India’s National Infrastructure Pipeline at $1.5 trillion is even more ambitious than what is being undertaken in the US. The NIP envisages infrastructure investment of

Rs 111 lakh crore over five years (FY 2020-25). Financing infrastructure investments at such a scale necessitate a reimagined approach and tapping alternative financing through innovative ways.

An estimated 15-17 per cent of the aggregate outlay is expected to be met through mechanisms such as asset recycling and monetisation, and new long-term initiatives such as a development finance institution. The government’s commitment to scale up infrastructure investments despite fiscal pressures reflects the priority accorded to the infrastructure sector, which is vital for overall economic growth and recovery due to its backward linkages in spurring core sector demand. It also holds the maximum potential for employment elasticity.

There are two other distinct emerging verticals of growth: The exponential growth of the digital economy, and in greening the economy, which will propel India’s rise over the next decade.

With the pandemic being contained to an endemic, business sentiment continues to surge with the resumption of demand, as corporates resume capital expenditure across sectors. Sectors like IT, pharma, steel, cement, real estate and infrastructure are taking the lead in investments, while a facilitatory ecosystem for startups has seen the rise of 36 unicorns within the last year. Simultaneously, the finance minister has been pushing government and public sector companies to buy more so as to kickstart a virtuous cycle of supply and demand.

The sense of cautious optimism in industry has been fuelled by continuous low-interest rates, an accommodative monetary policy, reduced corporate tax rates; the government aiming to eliminate burdensome compliances and reducing the need for licencing and multiple approvals; and also hastening the resolution of commercial disputes by making mediation the preferred route pre-litigation, to circumvent judicial pendency.

Gauging from the pace of “Gati Shakti”, the “speed and force” of reforms that have propelled the economic upturn in 2021, Modi will leave no stone unturned until 2024 to end his second innings as the tallest reformer of post-Independent India. He retains the political mandate, and has the political will to persist with tough reforms. The fact that he holds the highest global approval ratings of 70 per cent in the post-Covid times will help build the momentum for “India’s century”.

The writer is chairperson for the NCFI, Niti Aayog

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