The withdrawal of the three pro-farmer bills by the Indian government, announced in a televised address to the nation by Prime Minister Narendra Modi, has generated much debate on the trajectory of the economic reforms in India. While the small section of people agitating against the laws have welcomed it, a large section of people, especially those who value economic reforms, have wondered on the impact that this move will have on existing and future reforms.
One way to analyse this question would be to take a stock of what all the Modi government has achieved in the past seven years, since it assumed office. This would give some base to assess the reform credentials of the Modi government and thus an ability to assess the future trajectory.
The reforms since 2014 can be bracketed in nine segments and in each segment a significant number of reforms have taken place.
First, Making India a preferred investment destination.
A series of reforms have made India and attractive investment destination. These reforms cover a wide spectrum and have either facilitated new business environment or significantly eased compliance burdens. Some of these measures are —
A series of new labour laws
Reforming and codifying labour laws; putting in place a structured privatisation plan with the showpiece privatisation of Air India done; a progressive and now stable and well performing Goods and Services Tax making India one common market; rationalising corporate tax to among the lowest in the world and fixing tax rate for new manufacturing units at just 15%; making taxation hassle free with faceless taxation and assessment, solving legacy tax disputes with one time settlement plans, a first of its kind taxpayers charter, remission of duties and taxes on exported products providing level playing field; abolishing the controversial angel tax; abolishing the dreaded retrospective tax and giving relief to a large number of investors; repealing thousands of old and defunct laws that hindered business environment; decriminalising 48 sections of companies act thereby enabling further ease of doing business; hugely successful Production Linked Incentive (PLI) schemes across 13 key sectors such as electronics manufacturing, automobiles, drones, speciality steel, textiles etc; and national single window system for investors and businesses for environmental and other such approvals.
Second, Facilitating flow of FDI in India.
The inflow of FDI into India has been a remarkable success story under Modi’s tenure with India emerging as the number one nation in the world attracting FDI in greenfield projects.
Each year has been a historic high and the trend continued even during the pandemic year 2020-21 with India attracting more than $83 billion in FDI. In the first six months of current financial year (April 2021-Septmebr 2021), India has attracted $42.8 billion, which is 4% higher YoY and again despite a severe second wave of pandemic. Some of these measures are —
Rationalising local sourcing norms for FDI in single brand retail and allowing single brand retail to operate online; opening almost all sectors to automatic 100% FDI approval route including such sectors as biotechnology and pharmaceuticals, railway infrastructure, roads, ports, etc, renewable energy, and so on. Critical sectors such as defence manufacturing now have 74% FDI limit with automatic approval while it is case-by-case basis for even 100% and the FDI limit in insurance has been raised to 74% fulfilling a long-standing demand of investors.
Enacting Institutional Reforms
Three. Enacting institutional reforms. A host of reforms have been undertaken to strengthen financial markets, fiscal and monitory policy framework and institutionalise economic governance rather leave it to discretionary processes.
Some of these measures are:
Enacting the modern insolvency and bankruptcy code with strong legal framework to allow exit of financially unviable firms; reforming public sector banks including setting up the professional bank boards bureau for selection of top management and national financial reporting authority as independent regulator; legal framework for bilateral netting thereby releasing large sums of locked up capital; formalising the Monetary Policy Committee (MPC) that decides monetary policy and the system has worked well since its formation; amending the Discal Responsibility and Budget Management Act (FRMB) to use debt as primary target and fiscal deficit as operational target; allowing direct listing of Indian companies in foreign stock exchanges; revising definition of MSMEs thereby facilitating growth of MSME sector; merger of banks to enable emergence of Indian global scale banks; asset monetisation of diverse assets of central public sector enterprises to unlock almost $100 billion dollars of revenue; creation of commercial courts; institutionalising the process of lateral entry in civil services thereby bringing in fresh talent into policymaking; institutionalising e-auction of natural resources; deregulation of petroleum prices including diesel; and reforming the natural gas marketing framework.
Fourth, Agricultural Reforms
Even before Modi became Prime Minister, he had a very impressive record in the agriculture sector as Chief Minister of Gujarat. For more than a decade, the agriculture sector grew at close to double digits thus making a hitherto water challenged state into an agricultural powerhouse. As Prime Minister, he has taken forward the legacy.
Some of the reform measures are:
Setting up the agricultural infrastructure fund with an investment of almost $14 billion to scale up agricultural logistics; reforming the fertiliser landscape with such measures as neem coating urea thereby ending pilferage and ensuring seamless supply to farmers; institutionalisation of the Direct Benefits Transfer (DBT) paradigm in payments of Minimum Support Price (MSP) for agricultural produce thereby eliminating leakages through middlemen; creating the electronic National Agricultural Market (eNAM) to facilitate a common, national market for the farmers to sell their produce at the best price they could discover; and setting up a world class Crop Insurance scheme which has benefited millions of farmers.
Fifth, Reforms to create Sustainable Infrastructure
The infrastructure sector has arguably seen the most activity in the seven years of Modi’s tenure with a series of reforms along with a host of schemes. The reforms have broken past shibboleths and enabled new age sectors. Some of these reform measures are —
Allowing commercial coal mining, a reform which was once considered too difficult to even attempt but has now become a reality; amending mineral conservation and mining rules to allow private sector greater freedom to operate including for commercial purposes; reforming the real estate sector with the progressive RERA legislation; opening up the Indian Railways to private sector including in running of trains; reforming the port and cargo handling with the Major Port Authorities Act; a series of reforms in the civil aviation sector including opening up locked up defence airspace sector; notifying a futuristic drone policy with easy regulation and facilitating role of private players and entrepreneurs; opening up the cartography and geospatial map sector to private players which was hitherto a government monopoly; a hybrid annuity model to encourage PPP in highway construction; giving infrastructure status to housing sector thus enabling better financing options; enactment of the new hydrocarbon exploration policy; expansion of SEZs and land banks for plug and play infra; establishment of national GIS-enabled land bank system; a series of reforms in the Telecom sector including allowing up to 100% FDI and resolving the legacy tax issues; replacing a hundred year old legislation with the new Inland vessels bill; and reforming the government procurement norms by doing away with the dreaded L1 (lowest bidder) system that precluded quality.
Enabling a Digital India
Sixth. Paving way for a digital country. Digital India, launched in July 2015 has become inarguably the most successful measure under Modi government. A series of forward looking, progressive measures put India firmly on the world digital map. One of the results of this — in the year 2021, India has produced the largest number of unicorns — Startups that are valued at more than $1 billion — in the world. At last count this number was 34, far exceeding the established ecosystem in either the US or China.
Some of the reform measures in this sector are —
The globally acknowledged, the only if its kind in the world Unified Payments Interface (UPI) system that has revolutionised digital payments and made India the number one digital payments ecosystem in the world; the reforms in IT-ITES sector such as doing away with registration requirements for OSPs and a host of other reforms; the Svamitva scheme which is digitising land records across the country and bringing the fruits of reforms to every household; the light regulatory touch for social and digital media companies allowing them to flourish; and the scaling up of digital connectivity to every village in the country thereby enabling a billion plus population to be digitally connected.
Seventh, Building Social Assets for Large Economic Class
Unlike the western consensus which only defines reforms as those that affect the upper class or the industrial base, the meaning and definition of reforms has also been expanded under Modi government to include the poor and the underprivileged and those sections of the society that have traditionally been left behind.
Some of these reform measures are —
The mass scaling of affordable health care with Ayushman Yojana that has empowered 500 million people with free health insurance of Rs5 lakhs (almost $10,000); the launch of National Digital Health Mission and the Aatmnirbhar Swasth Bharat Yojana designed to scale physical and digital infrastructure to make India a global medical hub; the revolutionary Jan Dhan Yojana which spawned a financial inclusion model that has now become a global case study with over 437 million new bank accounts opened and a series of interconnected other measures taken such as collateral free Mudra loans, etc; the DBT regime that has on the one end ended leakages and pilferage of government subsidies and on the other hand empowered the needy with direct cash transfer to their bank accounts; the amendments to abortions act allowing the right of choice to women on whether they want to terminate their pregnancy within medically safe time limits; the affordable and clean domestic energy scheme that has empowered more than 90 million households under Ujjwala Yojana; and the consumer rights protection bill that protects a large number of consumer rights.
Future Proofing of Reforms
Eighth - future proofing reforms. Future proofing reforms means understanding the essence that reforms are a process and not an event and therefore the future generation must be sensitised from now on and made future ready so that when their time comes, they are ready to be the decision makers and implementers.
Some of the reform measures are —
The National Education Policy (NEP), the first such policy introduced after three decades, has been universally welcomed as a holistic, modern and well-designed policy that will serve the needs of India’s future generations; the National Medical Commission Act has ensured transparent and independent regulator in the medical field; and the IT intermediary guidelines are light touch, co-regulatory framework that trust the digital entities rather than clampdown on them.
Ninth, the Prioritisation of New Age Sectors — Defence and Space
A series of reforms in the defence sector — such as setting up of the long-discussed Chief of Defence Staff structure; the push for defence manufacturing in India with orders with $75 billion for India based manufacturing companies lined up in the next few years; the raising of FDI limit in defence sector to 74% under the automatic route and 100% on case-to-case basis and the corporatisation of ordnance factory board, among others, have brought a new dynamism in the defence sector in India.
The reforms in space sector have been variously welcomed as they now enable the private sector to be an equal partner in the space sector with even technology transfer of PSLV and SSLV to the private sector.
Overall, it can be seen that the Modi government has established an enduring image of itself, backed by performance, as the most reformist government in India in the last four decades. It therefor stands to reason that this record will continue and the line-up for the coming Parliament session only confirms the belief.
Reform, Perform and Transform is the mantra that Prime Minister has put forth. Modi’s record establishes that his government has been able to live up to this mantra. The future, which can be judged only on the basis of the trends established in the past and the present, therefore looks very bright for this reform journey to continue.