To Reform India, Modi 2.0 Needs to Remember Modi 1.0’s Agenda

Indian Prime Minister Narendra Modi’s first year in office saw his best performance on instituting reforms. Freshly in power, Modi took on the reform agenda with vigor. Six years in, the pace of reforms has noticeably slowed as the country looks inward and focuses on socio-political priorities.

But as a COVID-19 induced slowdown marks the government’s second term, there is a desperate need to get the economy back on track. The country urgently needs a revival of the spirit that marked the Modi government’s very first year in office.

Immediately after taking office in May 2014, Modi started to heavily engage the world, embracing foreign leaders and business executives. India embraced the world in another fashion too – by quickly opening up key sectors of its economy to foreign investment, and moving on some long-awaited domestic reforms.

At the Center for Strategic and International Studies in Washington, D.C., we have been tracking 30 high-impact reforms that enable job creation and ease of doing business through our “India Reforms Scorecard” for each of the two terms of the Modi government. As tracked in the 2014-2019 Scorecard, by its first anniversary, the Modi government had enacted six major reforms.

These include opening most of the railways to foreign direct investment (FDI), allowing more private sector participation in coal production and FDI in construction projects, extending the validity of industrial licenses, removing the last 20 remaining protected sectors under the small-scale industries list, and deregulating diesel pricing.

Reforms noticeably slowed as the term progressed but the government managed to institute two key reforms by its mid-term – the goods and services tax (GST) and the Insolvency and Bankruptcy Code (IBC). By the end of its term, nine reforms had been completed while several others were partially done and stood “in progress.”

If reforms marked the Modi government’s first year in the first term, socio-political priorities have defined the first year of its second term. As noted above, within a year of coming to office in 2014, the government had completed six major reforms included in our original India Reforms Scorecard, 2014-19. By contrast, one year into the Modi’s second term, only one reform from our revised India Reforms Scorecard, 2019-24 stands complete: a 25 percent corporate tax cut. Three other reforms related to corporate and non-banking financial companies’ bankruptcy have also seen positive government action but not enough to mark the reform “complete.”

The compulsion to remain in power has refocused the government’s political energies on socio-political issues like ending the temporary special status of Kashmir, doing away with triple talaq, fast-tracking citizenship for regional minorities through the Citizenship Amendment Bill, and starting the Ram Mandir construction.

Before the 2014 general election, the Bharatiya Janata Party (BJP) secured wins in Rajasthan, Madhya Pradesh, and Chhattisgarh. It soon expanded its political footprint with victories in Maharashtra, Haryana, and Jharkhand shortly after the general election win.

In contrast, the BJP came to power in 2019 with the loss in Madhya Pradesh, Rajasthan, and Chhattisgarh looming over it. After the 2019 general assembly, it also lost shared power in Andhra Pradesh and Maharashtra due to alliances gone awry. Economic growth and a good record on reforms did not cement the party’s stature at the state level. As the reform agenda recedes, populist tendencies are revived.

Socio-political issues are popular but detract energy from taking steps to revive the economy. Reforms that can spur economic activity, boost confidence, and put people back to jobs are the real game-changers.

The need for reforms, although ever-present, becomes even more critical in a COVID-19 induced slowdown. The government recently announced a slew of reforms that were akin to budget announcements, though implementation timelines are unclear.

Big-ticket and high impact reforms are required. Lifting foreign equity restrictions in protected sectors and giving more autonomy to major ports can provide a quick bump in growth. Other reforms related to judicial reform, securing timely business licenses/clearances, and making land acquisition easier are long-awaited and can boost business and investor sentiment amidst a slowdown. Some reforms that made sense pre-COVID are even more relevant today, like creating a paperless court system.

With the Modi government completing the first year of its second term, it has a choice to make. The government can let the last year define the rest of its term or it can change course – redirecting its energies from populistic measures to economic reforms.

Indeed, a revived commitment to reforms, which was characteristic of the government’s first term, can be helpful in fighting the slowdown. Just as the initial days of a romance are always worth aspiring toward in the later years of a relationship, the economic agenda from the first year of Modi 1.0 becomes more pertinent today.