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Bringing Structural Reforms to Economy of ‘New India’

Indian Economy Reform

Indian economy witnessed some structural changes in the year 1991 when the government had to take some stringent steps in the background of conditions imposed by International Monetary Funds (IMF) while giving assistance to India to overcome the Balance of Payments (BOP) crisis. However, in recent times, India has undergone the much-needed structural reforms, which were actually tough reforms that nobody had the commitment to implement . In addition, there were some visionary economic reforms. In this article, we list some of the economic reforms undertaken by the Modi Government along with their achievements.

Insolvency & Bankruptcy Code (IBC)

Pre-2014, India faced a major Non-Performing Assets (NPA) crisis which happened on the back of the infamous phone banking during the UPA Government days. Many of these ‘Bad Loans’ could not be recovered in the absence of a bankruptcy law in the country. IBC has finally filled this glaring gap.

This reform has been helping towards solving the recurrent problem of non-performing assets (NPAs).

  • According to the government data, under the IBC framework since its enactment, Financial Creditors have realized the claims of approximately Rs. 47 thousand crore in 26 cases where resolution plans have already been submitted.

Goods & Services Tax (GST)

With a single nationwide tax replacing a vast number of state and central indirect taxes, the government has simplified the tax structure of the country. This has resulted in an increasing number of enterprises who always wanted to pay taxes but avoided registering themselves due to the complex tax structure that existed in the pre-GST era. Below data clearly shows the acceptability of tax reform by the business enterprises.

  • Pre-2014, Enterprises registered for Indirect Tax – 66 lakhs
  • Post-2014, Enterprises registered for Indirect Tax – 1.2 crore

Widening of the Direct Tax Base of the Country

One aspect of the healthy economy is Tax to GDP ratio. India has historically lagged on this count. But, in recent times, there have been steps like demonetisation that helped in increasing the tax compliance in the country. Filing of income tax return has seen a great progress.

  • Pre-2014, number of people who filed IT returns – 3.8 crore
  • Post-2014, number of people who filed IT returns – 6.8 crore

Monetary Policy Committee (MPC) and Inflation Targeting

Traditionally, the decision of interest rate rested with RBI Governor alone. This arbitrary power was criticised widely. In fact, a committee led by the ex-RBI Governor Urjit Patel recommended setting up of the body which could take decisions on interest rates. Implementing this recommendation, the government facilitated setting up of MPC. Indeed, it was a long-pending reform suggested by various committees previously too.

  • Consequently, India has seen the average inflation rate of 4.3% and average GDP growth of 7.3% during the past four years.
  • There have been other measures too by the government that led to such reduction in the inflation rate, such as price stabilization fund for pulses, hoarding check etc.

Digitization of Economy

Black money is invariably generated in the cash-based economy. So, to check generation of black money, the government has rigorously pushed for the adoption of digital modes of payment in the economy. In the last 4 years, there have been many constructive steps like launching of UPI and BHIM App among others which ensured the Indian economy’s transition into a digital economy.

  • Overall Digital Payments in India reached to more than Rs 1600 lakh crore in 2017-18, from about Rs 950 lakh crore in 2013-14.
  • Growth of 5000% in UPI transactions (volume) in 2017-18 over 2016-17.
  • BHIM App, a government app to increase digital payments, saw transactions of more than Rs 37 thousand crores in only 6 months period in 2018-19.

Replacement of Planning Commission by NITI Aayog

India, since long, had a separate, central institution for planning and policy formulation i.e. Planning Commission (1950-2014). However, in 2014, it was scrapped and replaced by Niti Aayog. Formed in 2015, NITI Aayog emerged as an active promoter of India’s reform agenda with an emphasis on cooperative and competitive federalism.

  • Power of allocation of funds restored to Ministry of Finance in tune with international standards.
  • The government now has a dedicated think tank which is only focused on public policies and their outcomes rather than acting as a middleman between centre and state.

Budgetary Reforms

Long pending suggestion of advancing the date of the Union Budget in the Parliament has been accepted by the Modi government. This will do away with the process of ‘Vote on Account’ which used to be an interim budget sort of a measure to keep the finances of the country going until the budget is passed. This resulted in wastage of financial resources of the country.

Overcoming the populist tendencies, the Modi Government has also merged Railway Budget with the General Budget. This merger has helped Railways in increasing its capital expenditure while increasing the size of the general budget. Discussing only a single Appropriation Bill instead of two has helped in saving the precious time of the Parliament.

  • A per an estimate, when Parliament is in session, it costs Rs 2.5 lakhs per minute or Rs 2 crores per day. This itself shows the huge savings by streamlining the parliamentary processes as far as Budget is concerned.

Ease of Doing Business

Economy of a country largely depends on enterprises. Ease of doing business for these enterprises help in more business and profits which in turn result in more taxes to the government exchequer and jobs for the people. India in last 4 years has seen a meteoric progress on this count.

  • India moved from its rank of 142 in The World Bank’s ‘Ease of Doing Business’ Index in 2014 to 77 in 2018.

Financial Inclusion

A healthy economy is not only about growth but also about development. Development can be ensured when even the most marginalised people reap the benefits of the nation’s growth story. On these lines, government connected the hitherto unbanked people of the country with the banks. Pradhan Mantri Jan Dhan Yojana, a novel measure that broke many records, and brought vulnerable people under the banking net which helped them in coming out of the clutches of the exploitative money lenders.

  • More than 32 crore people were facilitated in getting access to a bank account in a period of 4 years only.

Gift City, India’s International Financial Services Centre (IFSC)

Large global investors prefer to transact or list their businesses in particular financial centres (as present in other countries also), due to complex rules, capital controls and uncertainty about taxation. Not only does this lead to loss of financial sector jobs, but it also means less revenue for the exchequer and loss of Forex.

Gujarat International Finance Tech-City (GIFT) has been developed on the lines of international financial hubs such as Dubai, New York, Hong Kong, and Singapore. Now Companies or Business Groups can list their companies on stock exchanges in this hub. In recent times this has picked up the pace and grown very fast.

  • According to a report, IFSC exchanges have crossed cumulative trading of $ 10 Bn.
  • Business transactions at GIFT have crossed $ 2 Bn mark.

These long-pending economic reforms have caused great loss to the country’s growth and development. As the Modi Government brought the above-mentional structural reforms in the Indian economy, its efficiency has increased many folds. Importantly, these reforms will have a long-lasting impact on the economy. There was a time when India was touted as ‘not able to cross the Hindu Line of Growth’, however, India has not only crossed it but touched an 8% growth rate under the leadership of former Prime Minister Vajpayee. The recent re-engineering efforts to correct the systematic flaws that were ingrained in the Indian economy have helped the country to increase its GDP base and embark upon a Double Digit growth trajectory.