The big bang reforms are here

The Narendra Modi government’s two years in power is more about hits than misses. Incremental and continuous changes to give the effect of big bang reforms and take the Indian economy to the next level is the main theme of two years of economic policy. The Modi government continued to focus on ease of doing business, bringing credibility to governance through auctions of natural resources, reviving stalled projects in road and other infra sectors and going back to fiscal prudence.

It used the fall in crude oil prices to deregulate diesel prices, something unthinkable only a couple of years back. The government is now trying to deregulate LPG for well-off sections of society and is implementing the direct cash transfer scheme for kerosene to curb its subsidy leakage. It approved replacing the controversial Production Sharing Contract in the oil sector with a simpler revenue-sharing regime for all future oil and gas field auctions, which could boost E&P activity in the country.

The biggest achievement of the Modi government is keeping down inflation. Despite headlines about high prices of pulses and some short-term spurts in food prices, the Modi government has been successful to a large extent in keeping inflation low. Retail inflation was 4.83 per cent in March and wholesale inflation was 0.34 per cent in April. However, more needs to be done to prevent short-term rises in food prices.

The government liberalised FDI in major sectors and opened up new sectors to foreign investment, including insurance and defence. To make faster realisation of FDI proposals, the Modi government increased the financial powers of the Foreign Investment Promotion Board (FIPB) to approve investment proposals worth Rs 5,000 crore from Rs 3,000 crore.

To push domestic manufacturing in India the government launched the “Make-in-India” initiative to curb imports. To push entrepreneurship at the ground level the government launched a number of schemes. It launched the “Stand up India” initiative to promote entrepreneurship among SCs, STs and women by facilitating loans in the range of Rs 10 lakh to Rs 1 crore. Start-up India, another initiative, was launched to make it easier for small entrepreneurs to set up businesses in India.

The Modi government has successfully tackled one of the biggest sources of black money investment in India by signing an amendment to the 1983 Double Taxation Avoidance Convention (DTAC) with Mauritius. As per the agreement, taxes on capital gains will apply to investments made from April 1, 2017 through Mauritius and will be imposed at 50 per cent of the domestic rate until March 31, 2019, and at the full rate thereafter. Many Indians with black money used to invest through Mauritius, a process called “round-tripping”. This new treaty is expected to block that route. The Modi government is planning to sign similar treaties with Singapore and Cyprus.

However, on the other hand, the government has also tried to pacify foreign investors complaining of tax terrorism in India. Soon after coming to power, the government announced that it would not initiate any new cases under that retrospective law. In order to bury the ghost of retrospective tax, Union finance minister Arun Jaitley in his Budget made a one-time offer to UK’s Vodafone Group plc and Cairn Energy plc to pay the principal amount and get a waiver on interest and penalty. The government has also decided to cut corporate tax rates and remove all exemptions. The government also passed key regulations — like the Bankruptcy Law and the Real Estate Bill — that will help businesses in the long term.

A goods and services tax is one of the long-pending reforms which has been stuck due to the BJP’s lack of numbers in the Rajya Sabha. The recent Assembly elections results have raised hopes in government that the bill may eventually get passed this year.