‘Liberalisation of Indian Economy has not been accompanied with adequate reforms’. Comment. (2020, 15 Marks)
The statement reflects the distinction between first-generation reforms and second-generation reforms. First-generation reforms were subtractive: after 1991 the state removed licences, tariffs and controls on foreign exchange and investment, mostly by executive notification. Second-generation reforms are constructive: they require building markets for land and labour and creating regulators, courts and administrative capacity. The statement is largely valid, because India opened its product markets much faster than it reformed the institutions around them, though the gap has narrowed since 2016.
Where liberalisation ran ahead of reform
- Factor markets. The Land Acquisition Act of 2013 made acquisition slow, and the 2015 ordinance to ease it lapsed. Land titles are still presumptive, not conclusive. The Labour Codes merge 29 central laws but came into force only on 21 November 2025, five years after Parliament passed them. State rules remain incomplete, and unions held a general strike against the codes on 12 February 2026.
- Agriculture. Market-committee (APMC) monopolies and stock limits under the Essential Commodities Act survived 1991. The three farm laws were repealed in November 2021 and the demand for a legal MSP is still unresolved. Farmers bear the risks of open trade without the benefit of a free domestic market.
- Human capital. Public spending on health remains below 2% of GDP and on education below the 6% target. Growth in IT and services therefore excluded most workers, which is the core of Amartya Sen’s capability critique.
- Infrastructure and power. State electricity distribution companies keep piling up losses. Cross-subsidies burden industry and logistics costs stay high.
- Judiciary and contract enforcement. With over five crore cases pending, commercial disputes take years to resolve, which discourages investment.
- Bureaucracy and state capacity. Red tape, inspections and corruption persist, raising the cost of doing business and weakening accountability. Lant Pritchett called India a “flailing state” (2009): its senior institutions are capable, but they cannot make field agencies deliver.
Why the gap persists
Ashutosh Varshney’s distinction between elite and mass politics explains the pattern. Reforms whose losers are hard to see passed quietly; reforms affecting land, jobs and farm prices led to mass mobilisation. Building institutions also pays off slowly, beyond one government’s term, so politicians have little incentive to pursue it.
The counter-case
- Tax and fiscal: GST (2017), simplified by GST 2.0 (September 2025), replaced a fragmented indirect-tax system.
- Finance: the IBC (2016) and inflation targeting (2016) set up rule-based institutions.
- Delivery: DBT through JAM (Jan Dhan–Aadhaar–mobile) made welfare delivery faster and reduced leakages.
- Governance: auctions for spectrum and coal replaced discretionary allocation, and the Jan Vishwas Act (2023) decriminalised minor business offences.
- The Labour Codes, though late, now exist.
Conclusion
The statement holds, though less strongly than it did. India liberalised trade and investment but only recently began reforming factor markets, the regulatory state and public services. The remaining agenda — land, farm markets, courts, the civil service, health and education — is about building state capacity, not opening markets further. Until that agenda is completed, the benefits of liberalisation will stay uneven across sectors and people.