Morgan Stanley's recent analytical report has swiftly become a central discourse in academic and financial spheres, vividly illustrating through a series of charts the extensive transformation of India since 2013. This period notably coincides with a seismic shift in the country's political landscape as the reins of the union government transitioned from the UPA to the NDA. The study enumerates 10 notable shifts, including supply-side policy reforms, the formalisation of the economy, the implementation of the Real Estate (Regulation and Development) Act, digitalising social transfers, the enactment of the insolvency and bankruptcy code, flexible inflation targeting, augmented focus on foreign direct investment (FDI), India's defining 401(k) moment, government support for corporate profits, and a multi-year high in MNC sentiment.
While critics have been quick to label this assessment as selective, it's hard to dispute the comprehensive nature of the reforms undertaken in the last nine years. Admittedly, certain reforms remain a work in progress, yet the government's commitment to progress is palpable. We propose to elaborate on nine reform measures (some of them have also been mentioned in the Morgan Stanley Report) that India has systematically implemented across various sectors, thereby fortifying the nation's economic resilience and elevating its stature as an economy full of promise.
(1) Goods & Services Tax
The first one on the list is the introduction of GST. The implementation of GST in 2017 has marked a significant transformation in the Indian economy, streamlining the indirect taxation system under the unifying principle of "one nation, one market, one tax". Eliminating internal tariff barriers and consolidating all federal, state, and local taxes into a single GST has enhanced market integration across the country, benefiting India's vast population of 1.4 billion people. This transformation has digitalized India's economy, leading to a standardized, seamless flow of information and making tax collection more effective.
According to a recent working paper by EAC-PM, interstate trade flows in India amount to approximately 69% of GDP when the domestic movement of imported goods is included and about 35% of GDP when considering domestically produced goods alone. Moreover, internal trade has grown at more than twice the GDP growth rate. This substantial enhancement of economic integration is attributable primarily to the introduction of GST. GST has brought about transportation efficiency gains, which have streamlined the process of moving goods across state lines, reduced logistical complexities, and thereby facilitated trade. As such, the role of GST in boosting interstate trade, contributing to economic integration, and supporting India's GDP growth underlines its critical importance for the country.
Unquestionably, the journey of GST in India remains ongoing, with several critical refinements yet to be made. The current tax rates necessitate rationalization to optimize their effectiveness. Furthermore, it would be most beneficial if commodities such as petroleum and alcohol were brought under the purview of GST. This inclusion would further streamline the tax system, fostering a more integrated and efficient economic environment.
(2) Insolvency and Bankruptcy Code
Ease of doing business extends far beyond merely facilitating the entry of enterprises-it crucially encompasses the liberalisation of capital departure. To ensure a well-functioning, efficient market system, it is absolutely necessary to establish a mechanism that promotes the unhindered exit of capital. Insolvency and bankruptcy regulations serve primarily to enable this capital outflow.
The Insolvency and Bankruptcy Code (IBC) has orchestrated a sophisticated system that guarantees a company's continuity or its exit while ensuring the protection of every class of creditor involved. It has demonstrated its efficacy in numerous situations by effectively addressing non-performing assets.
Moreover, the IBC has evolved into a formidable deterrent as creditors have wielded its procedures as a strategic tool to prompt debtors into reorienting and satisfying their financial commitments. This, in essence, emphasises the underlying objective of instilling a culture of compliance and respect for the credit system within the business sphere.
(3) Rationalization of laws and statutes
Since 2014, there has been a consistent and firm approach towards revoking outmoded laws, resulting in an effective and thorough overhaul of the country's legal framework. The government, guided by a clear and resolute vision, has committed to eliminating legislative impediments to economic expansion and societal evolution.
This transformative action goes beyond mere legislative adjustments; it signifies a comprehensive legal reformation, as reflected in the repeal of longstanding laws like the Calcutta Pilots Act of 1859, the Dramatic Performance Act of 1876, and the Hackney Carriage Act of 1879, among others.
This bold move illustrates a government determined to reorient the existing status quo, striving for legal reforms to meet the contemporary needs of the nation. The extensive legislative revamp undertaken by the Modi government indicates a proactive and committed engagement with the process of change.
(4) Decriminalizing redundant provisions
Since 2014, the Indian government has adopted a trust-based governance approach, driving ease of living and boosting the business environment. In her 2023-24 budget speech, Finance Minister Nirmala Sitharaman announced significant strides towards this goal. Over 39,000 compliances have been slashed, and more than 3,400 legal provisions decriminalized, demonstrating a relentless drive to streamline regulations and foster a friendlier business landscape.
A cornerstone of this shift is the Jan Vishwas (Amendment of Provisions) Bill, 2022. This bill targets decriminalisation and rationalisation of minor offences across 42 different Acts. The effects are twofold: 19 of these Acts affect the ease of living, while the remaining 23 affect the ease of doing business. With about 186 provisions decriminalising or rationalising imprisonment clauses, this bill is a significant step towards diminishing bureaucratic red tape.
This initiative checks lower-level corruption, preventing the misuse of laws like Section 59 of the Food Safety and Standards Act, 2006, often unfairly used to harass businesses. By eliminating irrelevant or archaic criminal provisions, the government curtails the potential for their misapplication.
Decriminalisation is also a boon for businesses by reducing their compliance burden and lowering enforcement costs for the government. This move positions India as a more attractive destination for investment, propelling economic growth and job creation. The government's trust-based approach, in essence, paves the way for an India that's easier to live in and better to do business with.
(5) Focus on Basic Necessities
In a decisive effort to ensure equitable access to fundamental necessities, the government of India, as revealed in the Economic Survey 2020-21, provided bare necessities to every Indian. The Bare Necessities Index (BNI), comprised of a holistic compilation of 26 indicators, is framed around five essential dimensions: water, sanitation, housing, micro-environment, and other vital services. The index serves as a pivotal tool to gauge the country's progress in fulfilling basic needs. The introduction of the BNI marked a significant milestone, reflecting the government's unwavering commitment to improving living standards for every Indian. Remarkably, the BNI demonstrated tangible progress, indicating that between 2012 and 2018, access to basic needs had improved in every state across the nation. This highlights the government's steadfast focus and successful initiatives in ensuring every citizen's fundamental necessities are within reach.
(6) Reimagining Welfare Delivery
India's welfare delivery mechanism is increasingly demonstrating a holistic and non-discriminatory approach. Irrespective of the geographical location, social group, language, or the phase of socio-economic development, the government has been striving to provide basic amenities to all sections of society, particularly focusing on the poorest 20%. A recent EAC-PM study by Shamika Ravi, which was conducted on more than 1.2 million households across the country between 2015 and 2021, found no evidence of the government favouring a single community or discriminating based on districts where one religious community was dominant. The gains in terms of access to electricity, bank accounts, mobile phones, and toilets were widespread across all religions and social groups, with some instances where minorities have made even more gains than the majority. While more needs to be done, particularly with regard to amenities such as LPG and on-premise water supply, this data contradicts the perception-based narrative that democracy has been declining in India since 2014. Instead, the findings suggest that the government is responsive to the needs of the marginalized sections of society, irrespective of their religion, caste, or place of residence - a robust indicator of the strengthening of democracy in India. This holistic and non-discriminatory approach to welfare delivery underscores India's commitment to promoting social development for all citizens.
Some of this has been possible because the government could rely on the JAM trinity. The Aadhaar, Jan Dhan, and Mobile (JAM) trinity stand as a transformative force in India's service delivery landscape, engendering a more inclusive and effective system. Aadhaar, serving as a unique identity for each citizen, seamlessly intertwines with public service databases, ensuring benefits reach their rightful recipients.
Jan Dhan, meanwhile, focuses on extending low-cost banking services to the underprivileged, marking a milestone in financial inclusion. This dovetails with Mobile, the final pillar of the JAM trinity, which harnesses India's widespread mobile usage to enhance the delivery of digital services. Furthermore, JAM has fueled India's digital payment revolution, thanks to the Unified Payments Interface (UPI), streamlining financial transactions. It has also fortified the delivery of government benefits via the Direct Benefit Transfer (DBT) system, minimizing leaks and ensuring benefits reach the intended beneficiaries. The JAM trinity has collectively ignited a societal revolution in India, ushering every citizen into a common financial, economic, and digital realm, revolutionising public service delivery, and promoting financial inclusion.
(7) Digital Public Infrastructure
India's Digital Public Infrastructure (DPI) and India Stack have sparked a dramatic transformation, showcasing an unparalleled futuristic vision of digital governance. These ground-breaking innovations have turned the tide, reshaping the face of transactions with advanced digital identity verification and frictionless digital payments.
The India Stack heralded as the world's premiere national digital infrastructure, has fast-tracked progress, leaving conventional financial technology models in the dust. With Aadhar at the helm of digital identity and the Unified Payments Interface (UPI) leading real-time payments, India Stack has set a global precedent in DPI development. Its well-rounded triad of digital identity, instant payments, and secure data-sharing platform encapsulates the essence of modern digital infrastructure.
Moreover, DPI has blossomed into an all-inclusive digital powerhouse, blending the prowess of government, regulators, private entities, and academia to create consistent value for all stakeholders. This metamorphosis has catapulted India to the front lines of the digital revolution, highlighting the nation's extraordinary leap from traditional paper-dependent methods to an ultra-efficient, digital-first approach.
(8) Reforms in Health & Education
Since 2014, the central government has transformed the education and health sectors. Introducing the trailblazing National Education Policy (NEP) 2020 was a game-changer, replacing a decades-old policy. It has reshaped India's education landscape, revamping the school curriculum, overhauling exam systems, and spotlighting multilingualism. It's an inclusive blueprint, ensuring children with disabilities are integrated into mainstream education, fortified by special training and technology.
In healthcare, the government unfurled the expansive Ayushman Bharat initiative. This ambitious plan shoulders hospitalisation costs for India's poorest. Additionally, the government launched the Jan Aushadi Kendras, a proactive measure to make quality medicines accessible and affordable for the public. Designated Jan Aushadi stores across India serve as the frontlines of this campaign.
(9) Real Estate (Regulation and Development) Act
The introduction of RERA has catalysed significant changes in India's real estate sector, sparking remarkable transformations. This formidable reform focuses on enforcing legal accountability from builders and developers, thus providing a crucial safety net for buyers. It has led to an impressive surge in real estate transactions over the past five years, marking the dawn of a new era in the sector.
RERA has spotlighted transparency and accountability, imposing a non-negotiable responsibility on developers to deliver on their promises while strengthening buyer protection. This pioneering Act has vested state real estate authorities with powers akin to courts. The real estate markets are undergoing significant alterations, with further evolution expected in the forthcoming years.
Yet, amidst these dramatic changes, the implementation of RERA across states reveals a patchy landscape. Not all states and Union Territories have managed to roll out the Act effectively. There's a glaring need for states to step up their game to fully unlock RERA's potential. State governments and stakeholders need to relentlessly refine and perfect the processes to bolster RERA's functionality.
The government has demonstrated an unwavering commitment to reform, manifesting in tangible transformations across a multitude of sectors. Through strategic implementation and unceasing diligence, this administration has embodied the principles of good governance: transparency, inclusivity, and a tireless drive for improvement. Reflecting on the sweeping changes, it is abundantly clear that this era marks a pivot in India's developmental narrative, demonstrating a reformist zeal that looks beyond cyclical measures to nurture a resilient, inclusive and prosperous India. These systematic and comprehensive reforms have not only strengthened India's economic backbone but also endorsed it as a promising global economic powerhouse. As the country continues to navigate the tumultuous waters of global uncertainty, the decisive, forward-thinking, and action-oriented reforms introduced by the government will undoubtedly continue to reinforce India's position on the global stage.
Bibek Debroy is the Chairman, Economic Advisory Council to the Prime Minister (EAC-PM) & Aditya Sinha is Additional Private Secretary (Policy & Research), EAC-PM.
Disclaimer: These are the personal opinions of the author.