The next five reforms India needs

For the first half of this year, India has grown at 8 per cent, defying most expectations. Despite volatility in global trade and tariffs, India’s exports grew by nearly 20 per cent in November. With reforms in the goods and services tax, the removal of several legacy controls, the reports of committees on deregulation, and the crucial implementation of the labour codes, the structural reforms raise India’s potential growth rate.

Currently, Parliament is debating important bills on private participation in nuclear energy and 100 per cent foreign direct investment in the insurance sector.

Clearly, the reform agenda is not running out of steam. We must keep this reform momentum going. With sustained growth of 8 per cent and more over the next successive quarters, we need them for the next two decades.

History shows that only a handful of economies, such as Japan, South Korea, Singapore and China, have achieved such long uninterrupted growth cycles. India now has the macro-stability, digital backbone and institutional capacity to attempt this leap. We must raise productivity, lower costs, deepen markets and strengthen our cities.

These are the five reforms that India needs.

First, municipal reform.
We cannot let our cities choke on pollution and overflow with waste anymore. While the Global Capability Centres are expanding rapidly, their future scale depends on cities that offer clean air, reliable infrastructure, efficient urban transport and responsive local governance. The Union Budget last year announced the creation of an urban challenge fund, worth ₹1 trillion. This must be operationalised at the earliest. Climate risk must be a central part of urban planning, with clean mobility and efficient buildings mainstreamed. Implementing circular economy solutions around water and waste is crucial not just for sustainability but also for public health. Fixing urban governance will make urbanisation a productivity multiplier.

Second, to continue building our manufacturing depth, the Clean Tech Manufacturing Mission and the National Manufacturing Mission, announced in the Budget, must be operationalised at the earliest. We must build our capabilities in technologies that are defining global industrial competition. Semiconductors, clean technologies, solar PVs, batteries, electrolysers and critical minerals are as much a technological flashpoint as they are a geopolitical one. Today, India remains heavily dependent on imports for many of these components, exposing us to supply-chain risks and undermining strategic autonomy. We must get big on green and digital manufacturing. Continued investments in infrastructure are essential, as world-class infrastructure and urban ecosystems enable manufacturing to scale. Blended finance, de-risking instruments and modern public-private partnerships (PPP) contracts can crowd in significant private capital to help overcome India’s infrastructure deficit.

Third, we must reduce trade barriers and manufacturing frictions.
Export ambitions require a clear recognition of a simple reality: to export competitively, India must import efficiently. Customs reforms are an important area of reform, as faster clearance, risk-based inspections and a shift to trust-based compliance should be the desired outcomes of this reform exercise. Reducing trade barriers also means fast-tracking negotiations of free trade agreements (FTAs). We must accelerate FTA negotiations while clearly protecting core industries, particularly in agriculture and sensitive sectors. Speed matters. Manufacturing ecosystems need assured access to large markets to achieve scale, attract investment, and integrate into global supply chains. Trade policy should be seen as an instrument of growth.

Fourth, innovation policy must be reoriented from grants to mission-driven development.
The dedicated national programme that provides grants of $1 million to $50 million to academics must be strengthened and aligned with industry needs. We must move beyond grant-heavy approaches and create institutional bridges between academia and industry. Commercialisation of research remains a blind spot in our innovation ecosystem, owing to a lack of strong university-industry linkages. Global models such as the Warwick Manufacturing Group (WMG) at the University of Warwick, UK, are pertinent examples. The WMG conducts industrial research, offers degrees, and supports small businesses. Notably, they have partnered extensively with industry to translate research into scalable solutions.

Finally, we must lower the cost of capital in the economy.
The average cost of capital in India is 400 to 600 basis points higher than in other large economies. To reduce the cost of capital, fiscal consolidation is a must. If the government borrows a sizable chunk of available capital, whether at the Centre or the State level, the remaining capital in the economy becomes more expensive. Institutional mandates ensure that government debt is bought up. Take, for instance, the statutory liquidity ratio (SLR), which mandates that a percent of all bank assets must be held in government securities. Similar provisions exist for insurance companies. There must be a phased rollback of the SLR to free up capital and lower borrowing costs. At the same time, the opening of bond markets will allow more corporate debt to be raised through bonds rather than loans.

Sustaining 8 per cent-plus growth rates is necessary if we are to reach high-income status by 2047. Our foundations — macroeconomic stability, digital public infrastructure and structural reforms — are firmly in place. We must match the boldness of our vision with execution.

(Courtesy: Business Standard)