U.S.-India Insight: The Wadhwani Reform Scorecard

Two years ago CSIS launched “The Modi Government’s Reform Program: A Scorecard.” The Scorecard pulled together the 30 biggest reforms pending the day Prime Minister Narendra Modi took office. This allows a broad, nonbiased way to measure progress on specific, measurable reforms. Three years after taking office, the Indian government has completed 9 of the 30 reforms, and another 13 are partially complete. We see real progress in reforming the Indian economy, though there has also been a noticeable slowdown.

Too often, India’s reform credentials are measured based on the very limited number of reforms that an analyst has in mind—land, labor, and goods and services tax (GST) are most frequently cited. We created the Wadhwani Reform Scorecard to broaden the aperture, running a wide survey of key publications, and pulling together an expert group to help pare down a much longer list of reforms we could have potentially included. Of course, few of these potential reforms have been deeply studied for their impact on growth, so near the end of the list there is sure to be debate as to what to include and leave out.

Using this tracking mechanism, the Modi government has done an admirable job, completing 9 of these 30 major reforms in three years. Since this is a relatively new tool, we are unable to benchmark this across time and compare to his predecessors, which would certainly provide a more robust picture. Still, the record seems quite noteworthy. And we do not offer full credit for partial reforms, such as the ad-hoc tool to end retrospective taxation and the underwhelming liberalization of foreign investment regulations as part of the Insurance Act Amendments, which still do not allow majority foreign ownership. These new insurance laws removed the ability for foreign firms to control their joint ventures—a right they had previously enjoyed.

The completed reforms from our original Wadhwani Reform Scorecard include:
  • Allow More Than 50 percent Foreign Direct Investment (FDI) in Railways (8/27/2014)
  • Deregulation of Diesel Pricing (10/18/2014)
  • Extend Expiration Date of Industrial Licenses (12/20/2014)
  • Relax Rules on FDI in Construction (1/6/2015)
  • Open Coal Sector to Private Sector (3/20/2015)
  • Remove Sectoral Investment Limits on Small Scale Industries (4/10/2015)
  • Strengthen Bankruptcy laws (5/11/2016)
  • Conduct Transparent Spectrum Auctions (10/7/2016)
  • Create a Unified Goods and Services Tax (7/1/2017)
This list does not include action on various other reforms that we did not include as part of our original tracker. For example, the foreign investment reforms in sectors such as media or demonetization (where there remains a raging debate over the costs and benefits).
If you study the list of completed reforms above, you may notice one thing—it is quite heavily weighted toward 2014 and 2015, when six of the nine reforms were completed. In fact, all of those six were completed within Mr. Modi’s first year in office.

There are a number of other reforms on our Wadhwani Reform Scorecard that appear close to completion. For instance, the government’s measures to stop “retrospective taxation” of cross-border investments, while ad-hoc, appear to be working well in practice. Natural gas prices have been partially deregulated. More subsidies are being delivered through direct benefit transfers. And there are rumors swirling about another package of reforms that may include raising FDI limits in defense and retail, and even allowing foreign lawyers to practice in India.

Looking at the partially completed reforms, plus other “low-hanging fruit” such as raising the ceiling on foreign portfolio investment in Indian firms, the Modi government has a straightforward path to further augmenting its reform credentials in the coming years. Once the 2019 elections are over and a new government is formed, we will reconstitute the Wadhwani Reform Scorecard and focus our attention on the next 30 major reforms.
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