People in India woke up to the sounds of firecrackers as the five-day Diwali celebrations began in the country yesterday. However, the most impressive fireworks seem to be coming from prime minister Narendra Modi, who has unveiled a slew of reforms five months after he was elected on promises of creating jobs and bringing the bounce back to the country’s economy.
Mr Modi’s actions include introducing a pro-reform team at the finance ministry featuring prominent economist Arvind Subramanian, who will help formulate the budget and policy. This is just one in a series of significant announcements.
On October 18, the government announced that it was removing price controls for diesel and increasing natural gas prices in an effort to cut its costly subsidy bill. There is risk in this move, considering that the consumers are also the voters who elected Mr Modi’s government. He deserves credit for taking potentially unpopular reforms to get long-term economic gains.
He also announced measures to pave the way for private companies to sell coal, helping to break the four-decade monopoly of Coal India, one of the world’s biggest miners. This is significant because lack of competition in the sector means it is plagued by poor infrastructure, inefficiency and bureaucracy. It has struggled for years to meet the country’s electricity needs, even though India has some of the world’s largest coal reserves.
Equally important are long-awaited labour reforms that will help slash the power of labour inspectors and also overcome the red tape that makes India one of the toughest places in the world to run a small to medium-sized business.
Some analysts warn that the effect of decades of policies that caused economic stagnation are too entrenched to be healed in a short period. Time will tell if these changes will achieve Mr Modi’s campaign promises, but it’s hard to disagree that these are big steps in the right direction.
