Why Reform Is Still Hard in India

India's post-independence history is punctuated by periods of declared reform that slow, stall, or reverse before completing the institutional changes they promised. The 1991 liberalisation, which dismantled the licence raj and opened India's economy to competition, remains the most cited example of successful reform — and it required a near-collapse of foreign exchange reserves to make it politically viable. Farm laws passed in September 2020 were repealed in November 2021 after over a year of mass protests, before they could produce their intended market effects. Labour codes passed between 2019 and 2020 consolidating dozens of existing statutes remain largely unnotified at the state level as of 2025. The pattern — ambitious legislation or announcement, followed by implementation failure, dilution, or outright reversal — is structural rather than exceptional.

Representational Image: Why Reform Is Still Hard in India

Understanding why reform is hard in India requires examining four distinct sources of resistance: vested interest groups who benefit from existing arrangements; electoral incentives that shorten political time horizons; bureaucratic risk aversion that dampens implementation enthusiasm; and federal complexity that multiplies the number of veto points any reform must navigate. These forces operate simultaneously and reinforce each other. A reform that overcomes one obstacle typically confronts the others.

Essential Context

• The 1991 economic liberalisation, implemented by Finance Minister Manmohan Singh under Prime Minister P.V. Narasimha Rao, succeeded against significant opposition from vested interests in part because the external payments crisis of that year left few viable alternatives.
• Three farm laws passed by Parliament in September 2020 were repealed in November 2021 following sustained mass protests by farmer unions from Punjab and Haryana; Prime Minister Modi announced the repeal on November 19, 2021, ahead of state elections in Uttar Pradesh and Punjab.
• Professor Pranab Bardhan of UC Berkeley has documented that a "constellation of interest groups" — including industrial protectionists, farm lobby constituents, and public-sector unions — operates as a powerful coalition locking in structural arrangements resistant to market reform.
• Former chief economic adviser Arvind Subramanian has described a phenomenon he terms "stigmatized capitalism" — a public distrust of market reform rooted in its perceived benefits flowing primarily to already-wealthy actors, which constrains the political coalition available to reformers.
• Carnegie Endowment research identifies India's federal structure as a fundamental reform constraint: many critical economic decisions (labour, land, power sector) involve concurrent or state-exclusive jurisdiction, requiring state government cooperation that cannot be mandated from New Delhi.

How It Works in Practice

1. Vested interests are organised; beneficiaries are dispersed: Those who lose from reform — incumbent businesses protected by licensing, farmers dependent on state procurement, public sector employees facing restructuring — are typically well-organised and geographically concentrated. Those who gain — future consumers, unborn entrepreneurs, citizens paying higher taxes for inefficient subsidies — are diffuse and less politically visible. This asymmetry systematically advantages resistance.

2. Electoral cycles shorten political time horizons: Most structural reforms — administrative, educational, fiscal, or regulatory — produce costs in the short term and benefits over years or decades. Carnegie Endowment analysis notes that returns to state capacity investments are "typically realised over a long time horizon" and are therefore systematically under-invested relative to what electoral cycles incentivise.

3. Federal complexity multiplies veto points: Labour law, land acquisition, power sector regulation, and education all involve either state-exclusive or concurrent jurisdiction. A Union government that wants to reform these domains must either pass central legislation on concurrent subjects (risking state opposition) or rely on state governments to legislate independently (producing uneven adoption). The farm laws episode illustrated this: Union legislation on agricultural markets — a predominantly state-subject area — was challenged as constitutional overreach as well as substantive policy.

4. Bureaucratic risk aversion dampens implementation: Even where reform legislation is enacted, implementation requires administrators to make discretionary judgments, alter existing procedures, and face the scrutiny of audit and vigilance bodies. IDFC Institute research documents how risk aversion in the IAS systematically discourages the bold implementation decisions that reform typically requires.

5. Reform by stealth as an alternative path: Economist Rob Jenkins identified what he termed "reform by stealth" — state governments quietly allowing non-enforcement of stringent labour laws, or central agencies creating regulatory carve-outs through administrative decisions rather than legislative change. This approach bypasses political resistance but produces uneven, non-transparent outcomes.

What People Often Misunderstand

• Political will is necessary but not sufficient: The farm laws demonstrated that a majority government with strong political will can pass ambitious legislation and still be forced to reverse it; political will is not the binding constraint in every reform failure.
• Reform failure is not always evidence of governance failure: Some policy reversals reflect legitimate democratic feedback — a signal that the reform was poorly designed, inadequately consulted, or mistimed rather than simply blocked by vested interests.
• Successful reform has happened repeatedly in India: Telecom liberalisation, UPI's rollout, GST implementation, and the Insolvency and Bankruptcy Code are examples of reforms that overcame resistance through sustained political commitment and institutional design — demonstrating that reform is hard but not impossible.
• The bureaucracy is not uniformly resistant to reform: Officers in high-performing states and sectors frequently innovate within existing systems; bureaucratic resistance is more pronounced in politically sensitive or high-scrutiny domains.
• Coalition governments are not inherently weaker on reform: The 1991 reforms were implemented under a minority government; a parliamentary majority is neither necessary nor sufficient for reform success.

What Changes Over Time

The introduction of Goods and Services Tax through the 101st Constitutional Amendment in 2016, requiring consent from two-thirds of states, demonstrated that major structural reform is achievable when it is designed through federal consensus mechanisms rather than unilateral central legislation. The Insolvency and Bankruptcy Code of 2016 reformed commercial insolvency resolution through credible institutional design — a new tribunal, clear timelines — rather than through administrative direction. Both examples suggest that reform success in India correlates more strongly with institutional architecture and genuine stakeholder alignment than with the magnitude of political will declared at the announcement stage.

Sources and Further Reading

• Pranab Bardhan — The Politics of Economic Reform in India: https://eml.berkeley.edu/~webfac/bardhan/papers/BardhanReformIndia.pdf
• Carnegie Endowment — Recovery, Resilience, and Adaptation: India 2020–2030: https://carnegieendowment.org/research/2020/09/recovery-resilience-and-adaptation-india-from-2020-to-2030
• House of Commons Library — Farmers' Protests and Agricultural Reforms in India: https://commonslibrary.parliament.uk/research-briefings/cbp-9226/
• PIIE — India's Trade Reforms 30 Years Later: https://www.piie.com/blogs/trade-and-investment-policy-watch/2021/indias-trade-reforms-30-years-later-great-start

(This series is part of a long-term editorial project to explain the structures, institutions, contradictions, and operating logic of governance in India for a global audience. Designed as a 25-article briefing cluster on Governance in India, this vertical examines how power, policy, bureaucracy, law, politics, administration, regulation, and state capacity function in practice across the world’s largest democracy. Written in accessible format for diplomats, investors, researchers, NGOs, civil society actors, students, academics, policymakers, and international observers, the series seeks to explain both how India is designed to work on paper and how India actually works on the ground. This is Vertical 1 of a larger 20-vertical knowledge architecture being developed by IndianRepublic.in under the editorial direction of Saket Suman. All articles are protected under applicable copyright laws. All Rights Reserved.)