India’s economic pivot from rules-based reform to deals-based tinkering

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This article, coauthored with was published in the latest issue of East Asian Forum Quarterly (Vol 16. No. 3, July - September 2024). We argue that over the last decade Indian policymakers are moving away from a rules based approach towards the long pending economic reforms, and instead have a deals based approach favoring a few sectors and firms. Ungated version reproduced below. India’s economic pivot from rules-based reform to deals-based tinkeringPrime Minister Narendra Modi’s first term saw India climb the Ease of Doing Business rankings. The country placed 63rd in 2019 and 2020, up 79 positions from 142nd when he took office in 2014. Government reports often cite these rankings as evidence of a pro-growth, pro-business and anti-corruption agenda.Yet, The Economist’s 2023 Crony Capitalism Index tells a different story, estimating that wealth from crony capitalist sectors rose from about five per cent to eight per cent of GDP during the first two terms of the Modi-led National Democratic Alliance’s (NDA) government. This index ranks India 10th out of 43 countries, with Russia at the top spot and China at 23rd.Has India embraced rules that ease business or rules that encourage cronyism and corruption?India’s political economy in transition defies simple explanations based on rankings or anecdotes about corruption. The regulatory legacy of socialist times combined with reform challenges in a federal system complicates matters. Add to this an economic model of picking national champions in a system with high entry barriers and protectionism—cronyism inevitably follows.Thes…