Not all crises are opportunities for reforms

The call for reforms today leaves out the stakeholders, which might undermine the very purpose of reforms

This year marks 30 years of the landmark economic reforms that permanently altered the production and distribution structures of the Indian economy. Swayed by the success of the 1991 reforms, albeit, at the macroeconomic level, there has been a growing clamour from economic commentators for some more doses of reforms in 2021. Both 1991 and 2021 have one thing in common: an economy facing a severe growth crisis. This raises two fundamental questions. First, is crisis a prerequisite for reforms? Second, given the magnitude of economic contraction, in 2021, are reforms capable of rejuvenating the economy or will they push the economy towards growth fatigue? It is not very common to depart from initiating incremental policy changes to making fundamental shifts in economic policy. Big-bang policy reforms often face hurdles in terms of rules and routines. Overcoming these requires effort and conviction. Crises provide opportunities for radical changes as they break down the legitimacy of existing policy approaches. Crises thus create a space for new proposals and possibilities, which could have far-reaching consequences for the economy and society. Viewed from a sectoral perspective, during a crisis, the services delivered by some sectors do not meet societal expectations, which in turn sets the stage for institutional reforms to enhance the credibility and legitimacy of those sectors. For the policymaker, crises can generate increased demand for change and that could be the opportunity for which they would have been waiting. However, not all crises create conditions for widespread acceptance of reforms, as they could generate other by-products. Thus, to posit a linear causal relationship between crises and reforms could be erroneous.