CONTEXT 

• The year 2021 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, there has been a growing tumult from economic commentators for some more reforms in 2021, since both 1991 and 2021 have one thing in common: an economy facing a severe growth crisis. 

CRISES AS AN OPPORTUNITY

• 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. 

FACTORS WHICH RAISES THIS ARGUMENT

The argument for converting a crisis into an opportunity to reform arises due to three factors:

• First, during a crisis, group relations and modes of interactions change, which sets a suitable background for change. 
• Second, at times of crises, authority replaces rules, which makes it easier to push the policies in a short time span. 
• Third, during periods of crisis, the legitimacy of prevailing rules and routines diminish, which makes it easier for actors to depart from them.

RELATIONSHIP NOT TRUE FOR ALL SITUATIONS

• Not all crises create conditions for widespread acceptance of reforms, as they could generate other by-products. 
• Thus, to postulate a linear causal relationship between crises and reforms could be erroneous.
• Crises cause the breakdown of established structures leading to instability. 
• They create uncertainty as the prevailing behaviour and choices of actors change. 
• This combination of uncertainty and instability sets the stage for a reorientation of policies, packaged and delivered under the banner of reforms. 

2021 IS NOT 1991

The character and consequences of the crisis of 1991 and 2021 are different. 

Exogenous factor:

• In 1991, the crisis of the economy was the product of endogenous factors (factors which were operating within the economic system), while the crisis of 2021 is different, as it is the product of a pandemic, which is exogenous to the economic system. 
• Thus the cause-and-effect relations are entirely different in the latter, as the cause originates from outside the economic system and the economy is forced to adjust to this external shock. 

Spread of crisis:

• In 1991, the crisis was limited to the Indian economy, while the present calamity has engulfed most global economies with varying intensities. This makes policy responses very challenging. 
• In the former case, we could have India-specific policies, assuming that there would not be drastic changes in the rest of the world, while in the latter case, India-specific policies will have to be tempered with the dynamics of the rest of the world, as all affected economies are formulating policy responses at the same time.

Pre-existing template:

• The availability of a semi-fixed template for reforms eased the matter in 1991. 
• The template, which had some generic measures for all the economies experiencing external sector imbalances, was a tried and tested one. 
• This gave policymakers some headroom to anticipate the likely consequences in the post-implementation phase.

TWO UNCERTAINTIES

In 2021, the challenge is to evolve a country-specific package, where two uncertainties pose serious problems in charting such a set of measures:

• The first is the uncertainty with regard to the government’s own revenues which would limit the policy space for interventions. 
• Also, expenditure reduction is not a viable strategy for expanding the scale and scope of policies in a situation of demand contraction due to the pandemic. 
• The second is the unpredictability of global factors, as India’s dependence on the global economy increased manifold after the 1991 reforms. 
• Thus, both these uncertainties have the potential to jeopardise the effective implementation of strategic changes.

MAGNITUDE OF 2021 CRISES

• The magnitude and intensity of the crisis of 2021 is manifold compared to that of 1991. 
• In its recent research report, Pew Research Center observes that a large section of India’s population would be pushed into poverty as a fallout of the economic crisis driven by the novel coronavirus.
• The number of people who are poor in India (with incomes of $2 or less a day) is estimated to have increased by 75 million because of the COVID-19 recession.
• This accounts for nearly 60% of the global increase in poverty.

CONCLUSION 

• All crises do not inevitably lead to possibilities for reforms, even though some do create opportunities for fundamental changes. 
• However, to gauge whether a crisis can be turned into an opportunity for reforms requires an in-depth understanding of the factors that led to the crisis. 
• Further, all the three clusters of actors who are crucial agents in the policy process — political leaders, policymakers and implementers, and the relevant stakeholders — need to have a shared vision. While in 2021, the call for reforms leaves out the stakeholders, which might undermine the very purpose of reforms itself.

Reference:

1. https://www.thehindu.com/opinion/op-ed/not-all-crises-are-opportunities-for-reforms/article34536882.ece