In the recent past, India has demonstrated an ability to act decisively and boldly in moments of crisis - and 2025 was no exception. Confronted by a fresh geoeconomic shock triggered by Trumpnomics, New Delhi returned to a familiar playbook, using the pressure of external disruption to push through a fresh wave of long-pending economic reforms.
However, what makes this moment stand out is the politically sensitive nature of some of these measures. Reforms such as changes to labour laws have long been acknowledged as necessary, yet avoided by successive governments - precisely because they are politically sensitive.
The crisis triggered by Trumpnomics created the space, and a spate of key electoral wins in assembly elections provided political momentum to finally convert intent to execution. And clearly, the Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA) is not done.
A few weeks ago, finance minister Nirmala Sitharaman told a public gathering that the upcoming Union Budget will press ahead with more reforms, including effecting a complete overhaul of the customs duty structure - bringing it on par with the soft touch employed by regulators while randomly scrutinising direct tax filings.
And then this weekend, Prime Minister Narendra Modi took to X to renew his government's commitment to economic reforms. The context was the conclusion of the annual meeting of chief secretaries convened in New Delhi and addressed by the Prime Minister. "This conference of Chief Secretaries," the PM posted on X, "has taken place at a time when India is witnessing next-generation reforms. India has boarded the Reform Express. And, the primary engine of this Reform Express is India's youth, our demography. That is why, it is our endeavour to empower this demography."
The obvious question then: has India, under NDA, pivoted from reforms of stealth to one of conviction?
The Reforms Playbook
India's previous approach to reforms followed a pattern. Inevitably, the inducement for walking the talk was triggered by a crisis. They seem to have had taken cue from Winston Churchill's famous remark: "Never waste a crisis."
This approach to economic reforms reflected the lack of political appetite in regimes to initiate such structural changes. This pattern was established well before 1991, when India undertook the big burst of reforms.
The second oil shock in 1979 triggered a severe external-sector crisis, leaving the then incoming Indira Gandhi's government with little choice but to turn to the International Monetary Fund (IMF). The $6-billion IMF loan approved in November 1981 - the largest ever for a developing country at the time - was not a policy preference but an economic compulsion.
To blunt the stigma around IMF, especially an institution dominated by the United States, Gandhi pre-empted the narrative. The Sixth Five-Year Plan (1980-85) committed India to competitiveness-enhancing reforms - fiscal correction, public sector restructuring, import liberalisation and selective dismantling of the Licence Raj - before IMF conditionalities formally kicked in. These loan conditions, crucially, were back-ended.
The sequencing mattered. By the time the harsher conditionalities were due, the economy had stabilised, allowing India to exit the IMF programme in 1984 without fully submitting to externally imposed reform. Gandhi correctly sensed that the political system was not yet ready for a wholesale structural reset - a template that subsequent regimes were similarly politically reticent to test.
But the crisis had forced the door open to the idea of reforms. It was carried forward under Rajiv Gandhi, with public sector restructuring - the corporatisation of the telecom networks in Mumbai and Delhi through the creation of the Mahanagar Telephone Nigam Ltd - selective industrial delicensing, the launch of the Long-Term Fiscal Policy of 1984, and the first tentative steps toward disinvestment from public sector undertakings.
However, continued mismanagement of the economy triggered another crisis in 1991. Facing an unprecedented balance-of-payments emergency and the country mere weeks away from default, India launched a sweeping programme of economic reforms - most notably dismantling the Licence Raj - to pull itself back from the brink under the leadership of Prime Minister Narasimha Rao.
But, once the crisis had faded, the political leadership of the country reverted to reforms-by-stealth or, at best, went after low-hanging fruit. The unfinished reforms agenda would, however, frequently test India's economy throughout the next few decades.
Matters came to a head when the COVID-19 pandemic struck in 2020. What began as a public health emergency quickly spiralled into economic devastation, with national income contracting by 23.9% in the first quarter of 2020-21. Worse, geopolitics took an ugly turn, especially after China openly challenged the hegemony of the United States as the world's primary anchor and later launched a skirmish with India in Ladakh.
Once again, this crisis induced a combination of bold policy interventions and structural reforms helped India stabilise the economy and re-emerge as one of the fastest-growing large economies in the world. And, like before, the ruling NDA eased the gas pedal on tougher economic reforms thereafter, particularly after it had to walk back its progressive farm laws in the face of protests.
Earlier this year, India faced another external shock when "Trumpnomics" returned to the White House. The United States imposed a 50% tariff on Indian imports during the early months of President Donald Trump's second term. While the full impact is still unfolding, New Delhi quickly recognised that tariffs were only part of the challenge.
The deeper issue lay in the lack of competitiveness of Indian goods - constrained in part by structural bottlenecks, including persistent shortcomings in ease of doing business, both at the level of the union and state governments.
But there was a catch: unlike in the past, this was not low-hanging fruit. The desired reforms agenda would be structural in nature and hence required strong political will. Further, most of them required states to be on board - a big ask given the deep divide in domestic politics.
Turning Point?
This is why what the NDA has undertaken in the second half of 2025 is remarkable. It began with the Union Budget for 2025-26, initiating a makeover in the income tax rates with the intent of putting more money in the hands of those at the bottom of the salary pyramid. Later, the government introduced a new direct tax code that aligned with the new growth trajectory of the Indian economy.
The long-overdue rationalisation of the Goods and Services Tax (GST) followed. Among other things, it shrank the number of tax slabs and rationalised the rates. Since this was piloted by the GST Council - the apex body made up of the union and state governments that oversees this indirect tax - the bipartisan consensus was an important bonus.
From November, the NDA upped the momentum for economic reforms, particularly with respect to ease of doing business (EoDB) - something that PM Modi had promised in his Independence Day address. The labour reforms - which consolidated 29 laws into four labour codes - were a marquee measure to improve EoDB. Since it is a state subject, a lot will depend on whether states take the cue. Some ambitious states like Uttar Pradesh, Maharashtra and Rajasthan have signalled their intent to move forward.
In the last few weeks, a flood of new laws - including allowing 100% FDI in insurance, opening up of the nuclear sector to private players - and a slew of free trade agreements (FTAs), suggest that the NDA is more than willing to walk its talk on reforms.
The big question is whether the union government will back-pedal if the political momentum, which is so much in its favour at present, reverses. If not, then indeed India has buried another ghost: the idea of reforms by stealth. Instead, it will have adopted reforms with conviction, a precondition if India has to realise its audacious ambition to become a developed economy in the next 22 years.
(Anil Padmanabhan is a journalist who writes on the intersection of politics and economics.)
Disclaimer: These are the personal opinions of the author
