India's Reform Journey Revisited: Montek Singh Ahluwalia, CSEP

18th July 2024

India's Reform Journey Revisited - Montek Singh Ahluwalia, Centre for Social and Economic Progress

What is one reform that was overlooked in 1991?

I wouldn't think of it in terms of one reform. I think of 1991 as a really transformative moment where we started the process of getting rid of a highly dysfunctional system of controls. At that time for us, the principal dysfunctionality was the control of investment by Indian companies. A very negative attitude towards large private Indian companies, and of course, the control of foreign trade, which made the Indian economy insulated, uncompetitive, and so on.

I think 1991 was a breathtaking change in those areas. We were very aware that we need to do a lot more. It wasn't a question of what is the one thing. In fact, within a year we spelled out that this change has to be accompanied by a change in the financial system, gradual opening up of non-FDI inflows coming from abroad, which was also linked to stock exchange reform, and so on. I guess the one area that we consciously delayed was labor reform. That was not sort of leaving it out, but recognizing that it is politically a very sensitive area.

I remember that, many, many years later, when Manmohan Singh, on the 21st anniversary of the reform, he was asked in Bombay, in an event celebrating the first 25 years, that, "When are you going to do labor reforms?" Even then, what he said is that "Look, I recognize that labor reforms are necessary, but we should get the economy growing more rapidly. When it's growing at 10%, we'll be able to do labor reforms."

That's an important issue. Because a lot of the restructuring meant loss of jobs in certain areas. Of course, it also involved creation of new jobs. New jobs that are actually better than the ones that were lost.  we had not yet created an environment in which labor felt that organized labor employment was going to expand rapidly. The political view was that, look, until you can do that, it's difficult to do labor reforms. That was of all the classical reforms that everybody was talking about. That was the one on which absolutely nothing was done. I guess even though we were always gradualists, we probably could have made a better start in that area -- to give a signal.

What is one reform that India needs today?

We've got a huge list. Any identification of one reform would not be very credible. The world has changed so dramatically, in terms of technology. It's also changed dramatically in terms of geopolitics. There's a new set of challenges, and that's climate change. Quite frankly, if you take a look at all of this, there's a whole list of things that we have to do. I think this whole focus of one reform is wrong. We have a huge job to do. It's a tough job, and we need to have a bigger effort being made politically for people to understand, first of all, the complexity of the change.

And, for people to understand, how do you build political support for it? A lot of this can become politically difficult to sell, so it's not easy.

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