BackThe BJP needs to recapture its reformist zeal
The 2015 Index of Economic Freedom puts the need for structural reforms in India into perspective with unerring clarity
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Too much has already been said about the Bharatiya Janata Party’s (BJP’s) debacle in the Delhi state assembly elections and the causes behind it. Yet in comparison, less attention has been paid to how the party should appropriately respond to this unexpected setback. Nine months after its monumental victory in the Lok Sabha elections, as the Narendra Modi government finds itself momentarily on the backfoot, it needs to urgently recapture the reformist zeal that brought it into office in the first place. There are huge strategic questions relating to the reforms agenda that lie ahead for the government, with the budget presentation looming just around the corner. What is really needed is a demonstrable commitment to economic liberalism and reforms that match the voluble rhetoric on offer.
In this context, the recent publication of the 2015 Index of Economic Freedom, an influential global comparative study published by the Heritage Foundation and the Wall Street Journal, puts the need for structural reforms in India into perspective with unerring clarity. The index has tracked the progress of economic freedom across 186 countries—in measuring economic freedom, it analyses countries’ commitment to the rule of law (including the protection of property rights), principles of limited government, regulatory efficiency and open markets.
Currently, India ranks a lowly 128th on the index. Even in the Asia-Pacific region, it ranks 26th out of 41 countries and its overall score is below the regional and world averages. Moreover, India has slightly slipped from last year—from 120th overall and 25th in the Asia Pacific. In other words, despite a change in government last year, the early phase of the Modi era hasn’t really resulted in a tangible uptick in the rankings.
Does this appalling record highlight deeper issues that the world’s largest democracy ought to take note? It certainly does because over the 20-year history of the index, the collective evidence points to the view that countries that largely embrace economic freedom provide the conditions that are most conducive to social progress. What comes through is the fact that economies achieving or sustaining higher levels of economic freedom measurably outperform others in achieving dynamic economic growth, long-term prosperity, and greater progress in many facets of social and human development too.
In other words, this study highlights that economic liberalism and social justice are not inherently conflicting values. More to the point, it outlines empirically that economic liberalism tends to benefit ordinary people in the long run.
To be fair to the government, some of its initial decisions justify a degree of cautious optimism. These included holding firm on the fuel price hike last year, steps taken towards the deregulation of diesel subsidies, seeking to raise the foreign direct investment cap from 26% to 49% in the insurance sector and most recently, the move towards a unified goods and services tax for the country. Yet equally, it remains the case most of the incremental steps taken so far have merely amounted to a continuation of what the preceding United Progressive Alliance had already mooted.
In truth, any truly original and bold reforms are yet to surface. There is certainly a gap between the government’s rhetorical flourish and its more prosaic actions. Some have taken comfort in the fact that while the government has not unveiled any seismic reforms, it hasn’t committed any major policy blunders either. Yet that line of thought places too low a premium on the decisive nature of the popular mandate given to the central government.
At the moment, the government has been given some temporary economic headroom due to the global reduction in oil prices which has held retail inflationary pressures in check. Yet that has been merely fortuitous.
The reality remains that structural changes on a range of subjects such as banking and financial markets reforms, public sector disinvestment and labour laws have been sidetracked for too long. A moribund manufacturing sector needs to be incentivized while infrastructure investment should be bolstered. Reducing bureaucracy and improving the delivery of public services ought to be a priority too. Curbing India’s fiscal deficit also needs to be kept at the forefront and the forthcoming budget will be a critical staging post. None of these challenges will be easy and they will entail tough choices.
To return to its early days in office which dramatically raised public expectations, the government had articulated a vision of minimum government, maximum governance for the greater common good. It ought to emphatically put that maxim in practice by reshaping the state and embracing economic liberalism. Otherwise, the promise of achhe din gaining traction may prove to be illusory.
Rishabh Bhandari is a lawyer and commentator based in London. He writes on subjects that include British and Indian social, political and economic affairs.
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