Substantial progress has been made towards restoring economic momentum. Much remains to be done.
With nearly 80 per cent of the poor living in rural areas, the government has rightly given the highest priority to reviving agriculture. A major initiative to create a genuine national agricultural market through e-auctions in mandis across the breadth and length of the nation has been launched. It promises to bring remunerative prices to farmers. The government has permitted 100 per cent FDI in the food chain as long as the produce originates domestically. To boost productivity in agriculture, the Pradhan Mantri Krishi Sinchai Yojana (PMKSY) is being implemented in mission mode with emphasis on low-hanging fruit, such as command area works of projects otherwise complete. The government has given high priority to drip and sprinkler irrigation. It is creating soil- and seed-testing facilities at 2,000 retail outlets of fertiliser companies. The Prime Minister’s Crop Insurance Programme, with much of the cost covered by the government, has also been launched. The NITI Aayog will soon unveil a model land-leasing law to help modernise tenancy laws across states.
On the external front, the cap on FDI in insurance, which had remained stuck at 26 per cent for more than a decade, has finally been raised to 49 per cent. Defence has been opened to FDI with the cap through the automatic route recently raised to 49 per cent from 26 per cent. A 100 per cent FDI in defence is permitted through the approval route. FDI up to 100 per cent has also been permitted in marketing of food products produced in India; high-tech and capital-intensive activities in railways; coffee, rubber, cardamom, palm and olive plantations; manufacturing of medical devices; e-commerce marketplace; and non-bank automatic teller machines (ATMs).
Early in its tenure, the government introduced legislation to auction coal and other natural resources. The reform brought increased transparency to the process with several auctions conducted in quick succession. The government has auctioned 31 coal mines and allotted another 42 mines to state entities for total proceeds of approximately Rs 3.4 lakh crore and six mines of minerals for Rs 18,000 crore. Among the early reforms was also the end to diesel subsidy with the price fully deregulated.
The government has introduced the Shram Suvidha portal to curtail inspector raj. The portal allows firms to self-certify compliance with Central labour laws with inspections conducted via a random selection of enterprises. The government has amended the Factories Act, 1948 to allow women to work night shifts and increase overtime hours per week. It has also amended the Apprenticeship Act, 1961 to encourage firms to take more apprentices. A campaign to improve the ease of doing business has led to a significant simplification of procedures, especially in the states. Telangana now gives its entrepreneurs the right to time-bound clearance of business proposals.
Encouraged by the Central government’s liberal approach towards amendments by states to Central laws on the Concurrent List, Rajasthan, Madhya Pradesh, Andhra Pradesh and Gujarat have amended several Central labour laws. The Haryana assembly has also voted similar amendments. In Gujarat, firms of all sizes located in the Special Economic Zones (SEZs), Special Investment Regions (SIRs) and National Investment and Manufacturing Zones (NIMZs) now have the right to lay off workers as long as they pay the latter 45 days worth of wages for each year worked.
For long, commentators have emphasised the need for a modern bankruptcy law. Absent such a law, firms find exit out of an activity a daunting task, which in turn discourages them from entering many profitable activities. Recognising this, the government has just enacted the Insolvency and Bankruptcy Act, 2015. act amalgamates all existing laws on corporate and individual insolvency and bankruptcy and provides a time-bound process of exit through professionals.
Under the previous government, mega tax assessments under the draconian retrospective tax law had pushed investor confidence to an all-time low. Soon after taking charge, the present government announced its commitment not to initiate any new cases under that law. It has made good on that promise while also offering a way out to firms charged under the law by the previous government. These firms have a one-time opportunity to settle the cases by paying the assessed tax with no interest or penalty applied. Negotiations with Vodafone are already underway.
There currently exist a total of Rs 5.5 trillion worth of tax disputes under various laws. As a further step towards reducing tax uncertainty, Budget 2016-17 offers to settle the cases involving less than Rs 10 lakh in dues without penalty as long as the dues are paid. Cases involving more than Rs 10 lakh in dues can also be settled on payment of 25 per cent of the minimum imposable penalty. The government has announced its intention to reform the corporate profit tax by eliminating myriad exemptions and reducing the tax rate to 25 per cent. As a first concrete step, Budget 2016-17 offers the option of 25 per cent tax plus surcharge and cess to companies incorporated beginning March 1.
There has been a total absence of any allegations of corruption during the two-year tenure of the government. Often overlooked, this is a major achievement in a country that has seen corruption scandals break out under virtually every government in recent decades. According to rankings by the Economist magazine, the wealth of crony capitalists in India has fallen to 3 per cent of the GDP in 2016 from 18 per cent of the GDP in 2008.
This narrative of reform initiatives of the government is by no means complete. I have not mentioned the efforts by the government to introduce the Goods and Services Tax and to amend the Land Acquisition Act, 2013. Nor have I touched on fiscal consolidation, monetary policy framework, cooperative federalism, replacement of the Planning Commission by the NITI Aayog, repeal of 1,178 redundant laws, the smart cities mission and social-sector initiatives.
These reforms, within a span of two years, represent substantial progress towards restoring the momentum of the economy. But given the large volume of counter-productive laws, regulations and rules that exist, much remains to be done.