Issues related to Economic growth

[op-ed of the day] Economic reforms are best done brick by boring brick


From UPSC perspective, the following things are important :

Prelims level: Not much.

Mains level: Paper 3- Economic reform-sudden or persistent and incremental, sustainable.


Rather than big bang measures or a stealthy agenda, India can count on small but significant improvements.

Reforms only in crisis or by stealth

  • The accepted conventional wisdom is that economic reforms in India happen only in a crisis or by stealth.
  • Reforms in the crisis
    • Reforms of 1991 : The big example of the former are the 1991 reforms.
    • In 1991 the country faced a huge foreign exchange crisis, resulting partly from the fiscal profligacy of the previous decade.
    • 1999 telecom sector reforms: Another example is from 1999 when the telecom sector was in near bankruptcy, and that crisis led to the shift away from fixed fee for spectrum to revenue sharing.
    • The situation of no other choice: In both cases, there was considerable opposition to those reforms, but they were pushed through because the crisis left no other choice.
  • Reform by stealth: Other than a crisis, more often than not, it has been economic reform by stealth.
    • In the form of executive orders: These reforms are often in the form of an executive decision rather than legislation. Following are the examples of it-
    • Expansion of the list under licence: The expansion of the list of items under the Open General Licence for imports, which is a reform of protectionism, or the reduction in the set of industries reserved for small-scale businesses.
    • Electoral bond introduction: A more recent example of stealth reform was the insertion of an electoral bond scheme in the Finance Bill of 2018.
    • Advantages of going stealth: Reform by stealth offers the advantage of going in either direction.
    • In 2013, faced with a potential currency crisis, the Reserve Bank of India (RBI) quietly retracted the limits on the liberalized remittance scheme (LRS).
    • Problem with stealth reforms: Stealth reforms are introduced stealthily but when they do not yield the desired result they are rolled back unpredictably, increasing uncertainty in policies of the government.

Persistent, encompassing, creative incrementalism in reforms

  • The Economic Survey of 2015 pretty much ruled out Big Bang reforms in India, calling instead for “persistent, encompassing, creative incrementalism” on them.
  • This is the right mantra.
  • What incrementalism means: It implies continuity, not slowness, a sustainable speed that gives reforms predictability and stability. Following are its examples of it-
  • Reform in food subsidy: Example of incrementalism could be reforms that are being carried out in food subsidies.
    • First: Reduce the leakages of the subsidy to non-farmers.
    • Thus, when procurement is done, payments go directly to their Aadhaar-linked accounts.
    • This will lead to non-farmers getting eliminated,
    • Second-Pay subsidy only to the poor: It will lead to subsidy savings, allowing us to limit the subsidy only to poor farmers.
  • Sovereign gold bond scheme: The use of paper gold greatly reduces imports of the physical metal and outgoes of foreign exchange.
    • The sale of these bonds is being expanded, and they would eventually be everywhere, even at post offices.
  • Aggregate licence by RBI: The next example is from a new category called account aggregators licensed by RBI.
    • It allows users’ control over the digital data trail that their transactions generate, and they can monetize it or use it to enhance their creditworthiness.
    • This is an incremental reform with huge ramifications.


  • The reforms cited above are incremental, not a big bang, persistent but not slow, open and not by stealth, and finally, imaginative too, since they respond to real needs.
  • Effective reforms are those that are done brick by brick, the boring measures that chip away at everything that constrains high, inclusive and sustainable growth.


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