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In a recent discussion, an economist and member of the Prime Minister’s Economic Advisory Council, delved into pressing issues surrounding economic reforms, privatization, and state-level disparities in India. The reflection shows the complexity of economic reform agendas and highlighted significant observations about India’s regional growth trajectories since liberalization.

The Gradual Path to Fiscal Reforms

He emphasized the importance of approaching fiscal adjustments with caution. While there may be scope to cut $2 trillion from government spending, attempting to do so within a single fiscal year could lead to economic disruptions and inefficiencies. Instead, he suggested a phased approach, potentially spanning four years, to ensure efficiency gains that stimulate economic activity. A “slash-and-burn” strategy, while appealing for its decisiveness, could create more bottlenecks than benefits.

This approach reflects the broader economic philosophy of balancing fiscal prudence with long-term growth imperatives. The need to temper reform efforts aligns with the challenges of maintaining systemic stability while pursuing ambitious fiscal targets.

Privatization: A Structural Reform, Not a Revenue Stream

The conversation turned to privatization, a long-promised but slow-moving reform in India. Privatization, as he explained, is a structural reform aimed at fundamentally altering ownership models rather than merely streamlining processes. While notable successes like Air India’s privatization demonstrate the potential of such reforms, the process remains incremental.

One key takeaway is the government’s approach to privatization not as a revenue-generation tool but as a means to create market-driven systems. By enhancing the value of public assets before divestment, the government aims to maximize returns without disrupting market dynamics. Efforts like land monetization and the gradual reduction of government stakes in public sector units (PSUs) exemplify this steady, calculated approach.

Process Reforms: Enhancing Efficiency

Sanyal distinguished process reforms from structural reforms. Process reforms aim to improve efficiency within existing frameworks without altering the fundamental structure. For instance, streamlining bureaucratic processes or leveraging technology for service delivery can yield significant improvements in governance without the upheaval associated with structural changes.

This distinction is crucial for understanding the Indian government’s reform priorities. While structural reforms like GST and the Insolvency and Bankruptcy Code grab headlines, process reforms often lay the groundwork for smoother implementation and greater efficacy.

Insights from State-Level Economic Performance

A key focused on state-level economic trajectories since 1960, offering valuable insights into regional disparities and their policy implications.

1. The Southern Surge: Southern states like Tamil Nadu, Karnataka, and Kerala emerged as major beneficiaries of the post-1991 liberalization era. These states leveraged reforms to double or even triple their per capita income relative to the national average, demonstrating the transformative potential of economic liberalization.

2. The Western Boom: Western India, particularly Gujarat, also witnessed remarkable growth. Gujarat’s economic ascent since 2000 exemplifies how targeted policies and industrial strategies can drive regional prosperity.

3. Eastern Stagnation: In stark contrast, eastern states like West Bengal and Bihar have lagged behind. West Bengal, once an industrial powerhouse, suffered from policy missteps, including early adoption of socialist policies that stifled entrepreneurship and industrial growth. Bihar’s per capita income remains a fraction of states like Goa or Sikkim, highlighting persistent regional inequalities.

4. Punjab’s Decline: Punjab, which once boasted the highest per capita income among sizable states, has seen its economic standing erode. Neighboring Haryana now outpaces Punjab by a significant margin, illustrating how policy choices and governance models can lead to divergent outcomes even in geographically contiguous regions.

The Case of West Bengal: Lessons in Policy Failure

West Bengal’s economic decline offers a cautionary tale. Despite its historical advantages as a coastal state and an early hub of education and industry, the state has failed to capitalize on these strengths. Socialist policies in the 1970s and 1980s dismantled its industrial base, driving away entrepreneurs and stagnating growth.

This decline underscores the importance of fostering a conducive environment for business and innovation. While national-level policies also played a role in eastern India’s struggles, state-specific governance failures were a significant factor.

Bridging Regional Divides

The discussion concluded with a broader reflection on India’s regional divides. The real divide, he argued, is not between the north and south but between the east and the rest of the country. Addressing this disparity requires a nuanced policy approach that balances the needs of lagging regions with the imperatives of national growth.


His insights highlight the complexity of economic reforms and the need for a calibrated approach to policy-making. Whether it is the gradual path to fiscal adjustments, the incremental approach to privatization, or the focus on process reforms, the overarching theme is one of balance—between ambition and pragmatism, efficiency and stability.

For policymakers, the lessons from state-level economic trajectories are clear: success depends on fostering an environment that encourages innovation, entrepreneurship, and efficient governance. As India continues its journey of economic transformation, these lessons will be crucial for shaping inclusive and sustainable growth.