23 May 2023 – The Indian Express

Economic Reforms in India

Context:

• Shaktikanta Das, governor of the RBI, recently stated that a 7% growth in India’s GDP is anticipated for FY23.

Important economic indicator data for the Indian economy:

• India will have the world’s largest economy with the quickest growth rate in 2023.
• According to purchasing power parity (PPP), India has the third-largest economy in the world.
• India’s nominal GDP is $3.7 trillion, making it the fifth-largest economy in the world.
• Due to its draconian lockdown, India saw one of the largest absolute GDP declines among the world’s major economies in 2020–21. The present growth rate is inflated by the low base that this decline caused, from which it is being measured.
• According to PIB, the fiscal deficit would be 5.9% in FY 2023–2024 and the revenue deficit will be 2.9% in FY 2023–2024.
• In the three months that concluded in December 2022, India’s current account deficit (CAD), or 2.2% of GDP, decreased consecutively.
• India’s foreign exchange reserves totaled $563.499 billion as of December 16, 2022, including $498.5 billion in foreign currency assets.
• The current exchange rate for India is 1 US Dollar = 82.76 Indian Rupees.
• For every 16 voters in India, one direct tax payer is present. In India, only 1% of people pay income taxes. India has a tax to GDP ratio of 16.6%, which is substantially lower than the averages for emerging market economies (21%), as well as the OECD (34%).
• In comparison to the previous year, India’s Gross Savings Rate increased from 30.2% to 30.2% in March 2022.
• The latest CMIE Report states that India’s unemployment rate is 8.11% as of April 2023.
• In February, the unemployment rate in urban areas decreased to 7.93% from 8.55%, while it increased in rural areas to 7.23% from 6.48%.
• India’s budget deficit was 6.4% of GDP, while its public debt was high at 83% of GDP.
• Investment as a percentage of GDP decreased from 34.3% in 2011–12 to 27.3% in 2020–21, the epidemic year.
• Except for the pandemic year of 2020–2021, it has since increased, but the investment ratio has averaged about 29% since 2014–15.
• According to a UNDESA report, India will likely grow at a 6.7% annual rate in 2024.
• For instance, the IMF projects that the Indian economy would expand by 5.9 percent in 2023–2024, which is significantly less than its prediction of 6.8 percent for 2022–2023.
• In 2023, inflation in India is predicted to fall to 5.5% as global commodity prices stabilise and imported inflation is lessened by a slower currency depreciation.
• Since May 2022, the repo rate has increased by a total of 250 basis points due to the Reserve Bank of India’s rate-hiking binge.
• According to information from the Ministry of Statistics, India’s industrial output, as determined by the Index of Industrial Production or IIP, decreased to 1.1 percent in March 2023.
• Agriculture will account for 18.3% of GDP in 2022, followed by industry at around 25% and services at 53%.

India’s inequality:

• According to a survey by Statista and Credit Suisse, India’s wealth Gini coefficient ended 2021 at 82.3 (High). Although the figures have not changed since 2020, they have significantly increased from 74.7 in 2000.
• According to an Oxfam analysis, more than 40.5% of all wealth in India was owned by the top 1% in 2021.
• According to the research, there were 166 billionaires in the nation in 2022, up from 102 in 2020.

Government-led economic reforms of note:

Reforms to Direct and Indirect Taxes:

• 2019 saw a considerable reduction in tax rates designed to increase investment and promote employment growth.
• If no specific exemption or incentive is taken advantage of, the tax rate for new manufacturing domestic enterprises under the Taxation Laws (Amendment) Ordinance 2019 has been dramatically decreased to 15%.
• Additionally, these businesses are not subject to the Minimum Alternate Tax (MAT). To 15%, MAT has been decreased.
• The assessment procedure now uses Faceless Assessment, which minimises interactions with the tax administration and speeds up the settlement of problems.
• The Direct Tax Code is a significant tax system reform that intends to consolidate all existing tax laws and regulations into a single piece of legislation. Important suggestions are:
• In the 2012–2013 fiscal year, the administration accepted the increased tax slabs that had been recommended.
• Without a corporate tax surcharge, corporate income tax should be set at 30%.
• In place of the previous tax rate of 18.5%, the Minimum Alternate Tax (MAT) rate should now be 20%.
• There are still several programmes that fall under EEE, such as PF, gratuities, pension funds, etc.
• Dividend Distribution Tax (DDT) Elimination: The Finance Act, 2020 eliminated the Dividend Distribution Tax in order to improve the appeal of the Indian Equity Market and to offer relief to a sizable class of investors and businesses.
• Only the recipients of the dividend income will be subject to tax at their respective rates.

Reforms to indirect taxes:

• GST: This indirect tax system was established to collect taxes and decrease tax evasion. India finally began the shift to a single GST in 2017.
• Entry tax and the Central Sales Tax (CST) were eliminated as a result of the unification of State and Central indirect taxes into the GST.
• This has had significant economic knock-on repercussions. The elimination of the entry charge has decreased travel times on the main thoroughfares, which has helped industries save money.
• It is an indirect tax that was put in place to replace a number of previous indirect taxes, including the purchase tax, excise duty, and value-added tax (VAT). GST is a tax that India imposes on the supply of specific products and services.
• There is only one tax that is imposed in India.
• employment Codes: To simplify the regulation of employment, the federal government also passed a set of four labour law amendments.
• Agriculture reform legislation was introduced to increase transparency and openness in the industry in order to double farmer income.
• Production-linked incentive (PLI) programme boosts manufacturing for sustained growth:

The government’s top priority is structural reform:

• To speed up the implementation of infrastructure projects, the PM Gati Shakti National Master Plan has been introduced.
• Among them are the PM Kisan Samman Nidhi Yojana, Neem Coating of Urea, Pradhan Mantri Fasal Bima Yojana, Pradhan Mantri Krishi Sinchai Yojana, and the Soil Health Card.
• Agricultural loans totaling Rs. 15 lakh crore are being offered at 4% interest, and in the last five years, farmers have received assistance totaling Rs. 77,000 crore.
• One thousand mandis have been connected to the internet as part of the E-Mandi programme, and so far one lakh crore worth of transactions have taken place.
• The 2016 Insolvency and Bankruptcy Code establishes a timeline for resolving insolvency in businesses and among people.
• The Samagra Shiksha Scheme is a general educational programme.

Important economic initiatives:

• NITI Aayog’s creation and the implementation of cooperative federalism.
• By implementing an aspirational district programme, inequality will be reduced and the advantages of development will be distributed fairly.
• Indicators for the development of skills, health, and education have been created in addition to the India Human Development Index to assess the effectiveness of the policies and their results.
• the creation of the Monetary Policy Committee, which will help manage economic growth and inflation more effectively.

Conclusion:

• Based on excellent macroeconomic statistics, India’s economy has been stable, and it has demonstrated resilience in the face of crises like the Covid-19 outbreak. Along with strong implementation mechanisms for human development in terms of education, health, and skill development, India needs to make economic decisions that promote efficiency, transparency, and accountability. By 2024, India’s economy will reach $5 trillion thanks to this.