In India’s political economy, change is defined by Newton’s laws of physics. The inertia—the strong political consensus for weak reforms—is dislodged only by external force. As chronicled in my book Accidental India, the transformation of India from penury to prosperity came in the wake of changes propelled by a series of crises.
India is at the cusp of a carpe diem moment. Trumponomics has upended the global economy into a crisis. The confounding tactics of US President Donald J Trump could well be the Newtonian external force. There is a rising chorus that India must not waste the crisis and must push reforms. The question is what can and must be done.
The need is to move beyond motherhood and apple pie, postpone the yen for big-bang reforms and dollarise change by addressing the friction holding back India. The crux should be to look at the processes, the entrenched inefficiencies which make India uncompetitive and the costs these impose on the economy.
The trouble with the design of reforms is that, often, governments—from the 1960 Patel Committee to recent commissions—dilute the call for essential freedoms into deemed concessions. While the focus is on the Centre, the bulk of next-gen reforms are with the states, which control factors of productivity. The Economic Survey of 2024-25 lists critical areas—land, construction, labour, utilities and logistics—where the states control standards and permits, and impose rules and penalties. These mandates are stranded in the past.
The promise of ease of doing business is now a decade old. Setting up a company is easier, but the processes have scarcely changed. Three decades after licence raj was dismantled, permission raj continues to thrive. Enterprises setting up a factory, power plant, hotel or hospital must get over 100 permissions. Once they are running—as Rishi Agrawal, CEO of Avantis Regtech, pointed out—entrepreneurs have to deal with 1,536 laws, 69,233 compliances and 6,618 filings. Then there is the inspector raj. A study by Agrawal and Gautam Chikermane reveals that there are 843 laws with 26,134 compliances that host the threat of imprisonment.
India’s tax landscape inhibits investment, production and consumption. Take the goods and services tax. The late Arun Jaitley, while introducing the GST in 2017, said, “Let the best not be the enemy of the good.” Nearly eight years later, it is an incomplete edifice mired in complexities of rates and compliances. Smaller enterprises propelling exports are hurt the worst. Last month, the parliamentary Public Accounts Committee demanded a redesigned GST 2.0. The system, the committee observed, is “riddled with so many issues, the vision of GST leading to a simplified and unified tax system, that is ‘One Nation, One Tax’, may remain evasive”.
The spectre in the direct tax domain is not dissimilar. Frequently fluctuating interpretations have spawned the spectacle of pending litigation. In July 2024, the government abolished the angel tax on start-ups. In March 2025, start-ups funded via Singapore received notices, triggering a buzz about the return of the tax despite clarifications by the Central Board of Direct Taxes . Elsewhere, multinationals complain bitterly about tax demands. All this has added to litigation. In 2017, there were 3.6 lakh appeals pending with the Commissioner of Income Tax and appellate tribunal. In 2025, there are 621,000 tax appeals pending, involving `29.79 lakh crore.
Energy is a critical input—its availability and affordability defines competitiveness. In 2020, the government began deliberations to bring power under GST. In 2025, nothing has changed. India is one of the few economies where enterprises don’t get input credit for electricity. What’s more, thanks to freebies and transmission and distribution losses, the industry pays up to 25 percent over the cost of electricity. The Economic Survey points out countries like Vietnam sell industry electricity at 10 percent lower than the cost of generation.
It is believed that India could gain from the current turmoil. The idea of China+1 has been hijacked by China, which now deploys transnational subsidies in countries it has invested in—for instance, on steel mills in Indonesia. Success calls for a study of opportunities and a centralisation of policy, as Japan did under Tsusho sangyo sho or METI, or South Korea did with MOTIE. On the other hand, India’s use of quality control orders has often put smaller enterprises at a disadvantage.
The use of production-linked incentives must expand to include capital goods. India imports machinery worth over $120 billion and equipment such as cranes for infrastructure ambitions. India could also consider collaborating to produce abroad and import duty-free for domestic use. Why not invest in and tap the phosphate reserves in Morocco, draw gas from Gabon to produce fertiliser or other energy-intensive items elsewhere to bring down costs and offshore carbon footprint?
Above all, India needs to build a war chest of resources for the crisis. This is the moment to leverage public sector assets—shift state holdings in PSUs above 51 percent into a sovereign Amrit Kaal Fund on the lines of GIC of Singapore—list, divest and monetise to fund industrial expansion.
Reforms also require political capital—the bonfire of vanities holding India back. The phrase ‘carpe diem’ was popularised by the Roman poet Horace. Horace ends his Odes with a profound verse: “While we talk, envious time will have fled: pluck the day, trusting as little as possible to the future.” Or else, all this could well end up as a hype-fest of hopes.
The Third Eye / Shankkar Aiyar