Reforms 3.0 underline a credibility gap. First, reform the reformer

The cabinet secretary recently announced that India was about to embark on Administrative Reforms 3.0. Normally, such an announcement would spark anticipation, if not excitement. The next stage of reforms is coming. India badly needs reforms to meet the impending headwinds in the global economy, the fragility of its external sector, and lopsided domestic growth. But for a government in its 12th year of power, Reforms 3.0 does not signal the next stage. It is almost an admission of the failures of the previous attempts. We need to understand the constitutive structural reasons related to the nature of this government that place a binding constraint on reform.

But let us look at the context. IMF reports should be read critically. But the 2025 Article Four Consultation Report has lines most would concur with. “Firms report longer customs delays in India compared to peers and senior management spend more time on regulatory compliance.” In an annexure, it says, “Firm dynamism, a key potential engine for productivity, remains subdued in India. The entry and exit rates for firms are below one per cent compared to 8 to 13 per cent in comparator economies. Fifteen per cent of firms in its sample qualify as zombie firms.” But it is our own Economic Survey 2025-26 that provides the most damning indictment. Curiously, these lines are framed as a critique of Indian capital — its propensity to seek rents rather than invest in long-term capital. But they are the clearest indictment of the current regime cloaked in a discussion of Indian capital. Paragraph 16.132 says, “Regulatory arbitrage, protected margins, and firm-specific accommodations often dominate productivity enhancement, scale competition, or learning-by-doing”. Who creates the conditions for this?

Or, even more candidly, in 16.131, the Indian corporate sector is described as operating in “a hybrid zone where rents are available, enforcement is uneven, and political mediation substitutes for market discipline”. In plain terms, the Chief Economic Advisor is hinting at the political economy of influence and corruption at the heart of the problem. This is a brave and candid admission from an official of the government 12 years in power. This political economy subverts any kind of administrative reform, and with the perception that the government clearly favours particular business groups, this problem has become worse.

The first attempt at “Ease of Doing Business” was such an eyewash, in part because the World Bank’s index, in which we were trying to climb up, was something of a farce. The government has often been successful in changing the formal rules of business to send a message: It consolidated parts of the tax system; some would argue for the labour reforms as an achievement; some regulations, like the incorporation of companies, have been simplified; environmental regulations have been unconscionably gutted; many offences have been decriminalised. But these apparent simplifications have been undermined by complexity elsewhere: Unclear quality control orders, less clear tax enforcement, repeated use of retrospective taxation, and the expansion of a whole range of minute regulations that affect ordinary citizens. We are back in an era of maximum government, minimum governance. India remains a difficult place to do business or set up organisations, as even the Parliamentary Standing Committee on Commerce noted.

So why has reform been so ineffective in unleashing dynamism? The political economy is certainly at the heart of the problem. There was a view that changing the structure of rents, centralising it rather than doing away with rents altogether, would help. But it is increasingly clear that more and more actors are extracting rents at different levels of government; they have even found a bypass for digitised solutions. Then there are other, standard fallacies of reform. Changing the formal rules of administration or business is not the same thing as changing the institutional conditions under which these rules operate. China showed the opposite: The institutional environment meant more than the rules. Changing the rules does not by itself remove the obstacles and frictions businesses and citizens face. But the government measures its success by those. Apparently, the cabinet secretary identified 11 types of bureaucrats, whose different orientations might affect institutional performance. It is a backhanded way of acknowledging an HR problem even at the highest levels of bureaucracy.

With this government, there is a more fundamental problem: Its ideology of governance. There can be no lasting reform unless the state machinery, on principle and by instinct, is committed to three propositions: Presumptive trust in citizens, decentralisation to appropriate levels of governance, and a hostility to unnecessary surveillance and control. This government is off the charts on all fronts.

This government refuses to treat citizens as autonomous agents capable of conducting their own affairs. Instead, even more so than previously, it treats them as sources of disorder, evasion or anti-national activity. Paradoxically, the more information it collects on citizens and businesses, the more it gets the discretionary power to intervene. “Logical discrepancies” are not confined to the SIR process; they have become a mode of governance. For years, it was common sense that India’s biggest reform would be decentralisation. But this is the most centralised government in modern history — fiscally, administratively, politically. Instead of serious reforms on the lines of the 73rd , 74th Amendments, even many state governments have been reduced to central tutelage. The cabinet structure is more dependent on the PMO. And finally, the political philosophy of this government is, by instinct, committed to control. In mission mode, and when the political economy incentives align, it can do things well: Highways, small pockets of industrial policy. But even by Indian standards, the control it exercises, even on the corporate sector, is unprecedented. If the government is serious about reform, it has to reckon with its core ideology. Otherwise, we will be in another top-down bureaucratic exercise. Reforms 3.0 underscore the credibility gap this government faces. We are dying of too much reform, without any reform of the reformer.