Reforms in India: How will it impact the Indian economy

Ever since the formation of the NDA government in May 2014, which fought the preceding election on a pro-development agenda, the nation – and indeed, the world – has been looking to it for an impetus to economic reforms.

Eighteen months later, it would not be an exaggeration to say that most observers are not quite satisfied. The primary reason for this is the sizeable presence the opposition continues to have in the Rajya Sabha.


Among pending legislation, the most significant are the Land Acquisition Bill (on hold as of August 2015) and the Goods and Service Tax Bill (stuck in the Rajya Sabha).

The Land Acquistion Bill, if passed, it is expected to be a game-changer for industrial development in India. Acquisition of land at economically-viable prices is one of industry’s main demands from the government. A rational Land Acquisition law that ensures fair compensation to those who are holding land would not only free up unusable land for productive use but also put money into the hands of those who are presently unable to convert land holdings into cash

The GST Bill is considered the most important economic reform currently pending in the legislature. GST would replace all the indirect taxes levied on goods and services by the Central and State governments with a single nationwide sales tax. It is aimed at being comprehensive for most goods and services. In a way, this would create a ‘common market’ in India, on the lines of the European Common Market. Potentially this would lead to a lower net tax on goods, controlling inflation, reduced corruption due to fewer number of government officials needed to be dealt with, among other things.

In addition to these, there are other items of economic reform already undertaken by the government. FDI liberalisation has been carried out in sync with the Make in India initiative, and already has led to India becoming the highest FDI-receiving country worldwide. The additional investment in critical, manufacturing-oriented sectors is expected to lead to not only an improved balance of payments situation but also greater employment levels.

Another important reform would be the fresh impetus given to disinvestment. Unlocking the value of governmental investment in businesses that are not related to public welfare will being in much-needed revenue while also bringing private enterprise and dynamism to the management of public sector undertakings.

Simplification of project clearances is another key reform that has led to investment of USD 20 billion in projects in India already. The further proposal to implement single-window clearance for projects in India could potentially lead to a quantum change in terms of ease of starting a business as well as provide a massive boost to investment levels in India.

And last but not least is the issue of labour law reform, an issue that successive governments have avoided confronting head-on. India’s current labour laws have led to creation of a privileged class of workers whose interests are protected at the cost of a vast majority of contract and unorganised-sector employees who have neither job security nor long-term career prospects. Reforms in this sector will lead to wider coverage for employment benefits and also make it easier for business to scale up and scale down in response to economic conditions.

India stands at the cusp of what could be the greatest economic revolution since Deng Xiaoping’s reforms transformed urban China in the 1990’s. But only time will tell whether the reforms that are needed to make this happen will ever come to pass, and if they do, what form the implementation will take.

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Kunal is an ex-banker with a (largely self-proclaimed) flair for writing. He is an associate member of the Institute of Chartered Accountants of India and an MBA from Narsee Monjee Institute of Management Studies (NMIMS), Mumbai.


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