Is Modi the reformer back?

What kind of reformist is Prime Minister Narendra Modi? This has been a matter of debate for the last five years; in fact, one could well argue that this conversation has never stopped ever since he became chief minister of the western state of Gujarat nearly two decades ago.

Here is a man who, famously, invited in the Tata group to build its small car with one SMS to Ratan Tata (Modi himself told me this in an interview around 10 years ago) when it was facing trouble in West Bengal, and created, with meticulous detailing, the successful Vibrant Gujarat investor summit, a model that has now been adopted by virtually every Indian state.

But while his first term as prime minister saw major structural reforms like the introduction of the Goods and Services Tax and the creation of a much needed bankruptcy law, progress was slow on issues like divestment of public sector units (or PSUs, as state-run companies are called in India, many of them loss-making) and loosening in areas like labour and the use of agrarian land.

In his second term in office, following a budget earlier this year which had many a rollback on taxation, Modi unfolded a historic corporate tax cut. With the slowdown becoming impossible to ignore and the falling consumer spend making headlines, the Modi government has announced its intention for wide-ranging disinvestment in a range of government-owned companies, including some major energy firms.

While it is unclear whether all the proposed disinvestment could be completed in the current financial year which has a disinvestment target of ₹1.05 lakh crores ($15 billion) since only a little more than ₹17,000 crore has been achieved at the moment, a deeper structural and political question needs to be considered about this announcement.

Modi began political life in office—and became prime minister—with significant tailwinds of reputation as a man who understood that government really had no business to be in business. In fact, he often said so himself. During his time in Gujarat, even though he had preferred to revive rather than sell off some PSUs, he had built a reputation for bringing in the role of private enterprise to resolve many thorny problems of the state including winning awards for building the most efficient land acquisition system for industry in the country.

In his first term in government, Modi worked to remove thousands of deadweight laws, but the big-ticket structural reforms especially in the labour market and agriculture have been repeatedly waylaid by opposition from other parties, and, importantly, from within the swadeshi economics factions of the ruling Bharatiya Janata Party (BJP) and its fountainhead, the Rashtriya Swayamsevak Sangh (RSS).

But good politics never wastes a crisis. And a crisis is what the Indian economy faces with dipping growth and demand, and questions on whether anything could really provide the millions of jobs that India needs.

Also, the Modi government needs money. One of its biggest vote-winning decisions has been to run mega state-funded welfare schemes in critical areas like health, including women’s health, and infrastructure, including electricity, water and homes.

This amplified expenditure delivered often with Modi’s hallmark efficiency has been instrumental in delivering major electoral benefits to Modi in critical states like Uttar Pradesh (which sends the largest number of members to Parliament), Odisha, Bihar, Madhya Pradesh, and others, especially in northern and eastern India. The aim of delivering piped water to every household by the end of the current term would be crucial across India from the desert state of Rajasthan to mega cities like Chennai and Bengaluru, which is fast running out of groundwater.

Disinvestment would bring in cash that could immediately be deployed in schemes that would win public support. With worrying economic news coming from all sides, there is less resistance to anything that is likely to bring positive headlines on the Indian economy today from every quarter.

This is the moment when Modi could, and is looking to, push long-pending sales such as that of cash-bleeding national airline Air India and others, and perhaps even push land and labour reforms which might be difficult to achieve at any other time.

Many long-pending reforms in the Indian system appeared on the back of crises—from the 1991 opening of the economy which happened when the country was almost bankrupt to a series of thuggish corruption cases in real estate that led to the creation of a real estate regulator.

As tough as the current economic moment seems, it represents a golden moment of opportunity. And Modi seems to be signalling that he would not let it go to waste.