Source: The Hindu Business Line
The first three years of Modi Government have witnessed a steady foundation for bolstering country’s economic and social outlook in eyes of the world. Flagship initiatives (Jan-Dhan Yojana, Make in India, Smart Cities Mission, Digital India, Skill India) and landmark regulatory reforms (Insolvency and Bankruptcy law, liberalization of FDI policy, GST) have provided a robust policy and institutional architecture for tackling the growth inhibitors. On the Independence Day last year, PM Modi had put forth ‘Reform, Perform and Transform’ as Government’s core working mantra; whilst the Government has conceived multiple policy measures embodying this theme, the implementation efficacy remains to be measured.
In the context of foreign investment policy, the FM’s announcement (in 2017 budget speech) regarding further liberalization of the FDI Policy, alongside dismantling of the Foreign Investment Promotion Board, is a progressive decision. Spur in FII investment in 2017 is an indication of growing confidence putting aside fear of new US Trump administration’s monetary policy stance. Whilst the rising tide of protectionism could slow down India’s climb on ‘preferred investment destination’ index, timely decisions for tackling global dynamics would help shift gears. A related point is impact assessment of the ‘ease of doing business’ initiative – despite multiple policy initiatives deployed by the Government, India’s current ranking at 130 (out of 190 countries) is far from PM Modi’ vision for India featuring in the top 50.
Considering that ‘Agriculture’ continues to be centerpiece of the Indian economy, the Government’s focus to boost ‘Agriculture’ and doubling farmers’ income by 2022, is right on cue. Recently, the NITI Aayog released the (draft) Three Year Action Agenda (2017-18 to 2019-20) setting out proposals for policy changes across different sectors. In the context of ‘Agriculture’, the Action Agenda outlines four-pronged action plan (viz, reforming agricultural produce marketing, enhancing productivity, reforming agriculture land policy and relief measures). Successful implementation could bolster the rural economy (accounting for 48.9 percent of total workforce as per NSSO data for FY 2011-12), and contribute to rise in demand.
On infrastructure development front, policy push is required to spur capital formation, though several stalled projects have taken of. Supplementing enhanced government spending, Public Private Partnerships and mechanism for resolution of disputes in infrastructure related contracts, will boost project activity and encourage higher private investments.
Another critical aspect for the Government to evaluate is – whether India’s growth story entails commensurate increase in job opportunities. The 5th annual employment-unemployment survey conducted by the Labour Bureau reveals that for 2015-16 unemployment rate in India stood at 5 percent, highest in last five years. Whilst the Action Agenda sheds light on key intervention areas for job creation and specific action points for sectors with high employment potential, employment presents a challenge of sorts for the administration.
The landscape has seen most developments in the post-demonetization era, with plethora of legislative and administrative measures which will be supplemented by rigorous compliance requirements all aimed with an objective to improve transparency, expand tax base and effectively deal with the menace of unaccounted wealth. Tax reforms for India Inc and foreign investors are unfolding rapidly – whilst on the global front, advent of BEPS is likely to impact the established business practices, Indian domestic tax laws too are in midst of an evolution phase with the GST regime, GAAR provisions and POEM rules gradually coming into effect. Union Cabinet’s decision to approve signing of the OECD-G20 led BEPS multilateral convention by India, shall trigger amendments to tax treaties with an aim to curb treaty abuse and facilitate ease in exchange of information for cross-border transactions. It is critical that the tax administration exercises caution in its approach for application of the new laws, so as to mitigate the incremental burden on taxpayers and not impose onerous obligation. Also, the Government needs to ensure that the dispute resolution framework is sufficiently equipped to resolve disputes between tax authorities and taxpayers, particularly treaty partners. In the backdrop of its promise for a clear and non-adversarial tax regime, with recent changes in tax laws, it appears that the Government has a host of aspects to review before its last full Union Budget (in 2018).
It would be fair to say that Government’s performance is marked by two key attributes – mature policy thinking and boldness to chase steep objectives. As the Government steps in its penultimate year, it intends to release a ‘report card’ on the eve of its third anniversary; a communique has been issued by the Ministry of Information and Broadcasting for collating details of major achievements/ reforms since the Government assumed reigns. Given the last three years’ experience, it would be reasonable to expect that this exercise would not be restricted to recapping laurels, but would also contribute to charting out the roadmap for the distant targets it has set its sight on.