Fast Pace of Reforms: Right and Wrong

Context: Instead of big bang reforms, there is a need to carry out incremental reforms on a continuous basis.

Arguments in favour of Big bang reforms

• It is in accordance with Joseph Schumpeter’s idea of creative destruction.
• Some policies demand big bang reforms: E.g. a policy like demonetisation can have any meaning only if it is a surprisingly big step.
• The crisis period demands it: from the viewpoint of the policy-makers.
• Incremental reforms face a problem of the “boiling frog syndrome”: i.e. it argues that people may not change their ways if reforms are gradual.

Arguments in favour of using Incremental reforms

• Creative destruction achieved by gradual approach: Low chances of flare-ups due to ideology, politics and sentiment.
• Gradual approach is not a lazy approach: Rather it requires more efforts because a well-thought-out phased programme requires significant additional homework.
• Easy implementation: E.g. reduction of subsidy on diesel by 50 paise per litre per month over several months. (Better than entire subsidy being removed in one go)
• Even policies demanding big bang reforms can be done through gradual approach: E.g. Different objectives of demonetisation could have been realised separately through alternative means in an incremental and not in a disruptive manner.
• Small changes in many areas are better than a sudden change in one area:
  • Many small changes can be woven into one large, coherent, non-divisive, routine, transparent, anti-fragile and sustainable reform process.
  • Avoids too much happenings in one sphere and hardly anything in another sphere. 
  • Reduces the suspicion that people with vested interests may be pushing big reforms in one area for their benefit. 
• Incremental reform is better even in crisis period: as big bang reforms are abrupt for stakeholders.
• Scientific evidence rules out the “boiling frog syndrome”.
• International experiences:  Nations that rank high in the happiness index, by and large do not carry out big bang reforms.

Conclusion: It is best to avoid “jhatka” economics, instead carry out incremental reforms on a continuous basis and do so in a number of sectors and regions.