It's Raining Reforms And FM Deserves Credit For Setting A Scorching Pace After An Insipid Debut Budget

Since taking reigns of Indian economy as the Finance Minister, Nirmala Sitharaman has overseen the roll-out of several far reaching reforms.

Last month, Chief Economic Advisor Krishnamurthy V Subramanian said that the host of reform measures being undertaken by the Narendra Modi government are as path-breaking as the historic 1991 economic reforms as they deal with the more politically-difficult market change such as labour reforms.

Here is a list.

Corporate Tax Cut

In her first budget presentation in July 2019, Sitharaman announced the government's target of making India a $5 trillion economy by the year 2024-25.

She announced a lowering of corporate tax rate on domestic companies to 22 per cent subject to such entity not availing any exemptions and incentives. Also these companies will also not be required to pay any Minimum Alternate Tax (MAT).

The minister announced an even lower 15 per cent corporate tax rate for new domestic companies making fresh investment in manufacturing. These companies should have commenced production on or before 31 March 2023 and would also get exemption from MAT.

Overall, this made the effective tax rate, including cess and surcharge, 25.17 per cent for the domestic companies and 17.01 per cent for the new manufacturing companies.

Farm Reform Bills

Last year, the union government passed the three farm reform bills to end the monopoly of traders and free farmers from restrictions on sale of their agriculture produce.

The Essential Commodities (Amendment) Act does away with the Centre’s powers to impose stockholding limits on foodstuffs, except under “extraordinary conditions”. The stock limits apply only to traders — the amendment exempts from the stockholding limits, processors, exporters and other “value chain participants” as long as they don’t keep quantities beyond their installed capacity/demand requirements.

Farmers would gain from removal of stocking restrictions as it postulates unlimited buying and, hence, increased demand for their produce.

The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act provides a voluntary regulatory framework for contract farming. Contract farming is already operational in many crops in India. The law explicitly prohibits any sponsor firm from acquiring the land of farmers– whether through purchase, lease or mortgage.

The third and most contentious Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act permits sale and purchase of farm produce outside the premises of APMC mandis and states that no levy under APMC or any other state act will be applicable. It establishes a dispute resolution mechanism for transactions outside the mandis involving the DM office.

PLI Scheme for 13 Sectors (with more than half of them rolled out)

Budget allocation of $20 billion to 13 core sectors of the economy, under the PLI scheme, was made to encourage the manufacturing base. It aims to give companies incentives on incremental sales from products manufactured in domestic units. Various sectors including automobile, pharmaceuticals, textile, electronics, food processing, telecom etc have been covered.

The objective of the scheme is to support creation of global manufacturing champions, support Indian brands in the international markets, increase employment opportunities. It will also help establish backward linkages with the MSME sector in the country.

National Infrastructure Pipeline And DFI

In her budget speech of 2019-2020, the Finance Minister had announced an outlay of Rs 100 lakh crore for infrastructure projects over the next five years. A high-level task force had submitted a final report on the National Infrastructure Pipeline (NIP) with projected infrastructure investment of Rs 111 lakh crore during FY 2020-25.

The NIP will improve project preparation, attract investments, both domestic and foreign, into infrastructure. It covers both economic and social infrastructure projects based on the updated Harmonized Master List of Infrastructure.

Out of the total expected capital expenditure of Rs 111 lakh crore, projects worth Rs 44 lakh crore (40 per cent) are under implementation, while projects worth Rs 33 lakh crore (30 per cent) are at a conceptual stage. Further, projects worth Rs 22 lakh crore (20 per cent) are under development -- project identified and DPR prepared, but yet to draw-down funds -- and the balance projects worth Rs 11 lakh crore (10 per cent) are unclassified.

To give a push to infrastructure creation a Development Financial Institution (DFI) with a seed capital of Rs 20,000 crore was proposed in the Union Budget 2021-22 by the Finance Minister. It will be managed by a professional board and is expected to attract capital from the market.

Bad Bank

In a move to clean up the banking sector, Sitharaman in her 2021-22 Union Budget speech announced the setting up of a 'bad bank', including an asset reconstruction company and asset management company to take over the stressed assets of the lenders.

The National Asset Reconstruction Company (NARCL) proposes to acquire stressed assets of about Rs 2 trillion in phases. NARCL will pay up to 15 per cent of the agreed value for the loans in cash to the bank and the remaining 85 per cent would be security receipts to be redeemed after the assets are successfully disposed. Recently, a formal government guarantee worth over Rs 30,000 crore was announced on these securities receipts.

Telecom Package

In a relief to the Indian telecom sector reeling under stress for quite a while, the government recently announced several structural and procedural reforms.

It allowed Foreign Direct investment (FDI) in the sector up to 100 per cent under the automatic route, redefined adjusted gross revenue (AGR) to exclude non-telecom revenue, and announced a four-year moratorium on the payment of dues (but interest there).

As per the announcement, telcos would also not have to pay any spectrum usage charge for airwaves acquired in future auctions. They can share spectrum without incurring any additional cost. They can hold the airwaves acquired at an auction for 30 years instead of 20. The government also fixed calendar for spectrum auctions with an extended tenure of 30 years for future spectrum allocations, and a mechanism to surrender and share spectrum.

These are expected to protect and generate employment opportunities, promote healthy competition, protect interests of consumers, infuse liquidity, encourage investment and reduce regulatory burden on Telecom Service Providers (TSPs).

Deposit Insurance and Credit Guarantee Amendment Bill

Deposit Insurance and Credit Guarantee Corporation Bill, 2021 provides relief to small depositors by providing guarantees on their life savings, and increasing the insurance amount on each depositor's bank deposit to Rs 5 lakh from Rs 1 lakh in both principal and interest.

It will cover 98.3 per cent of all deposit accounts and 50.9 per cent of deposit value - higher than global average of about 80 per cent of deposit accounts and 20-30 per cent of deposit value.

Account Aggregation

Earlier this month, eight of India’s major banks — State Bank of India, ICICI Bank, Axis Bank, IDFC First Bank, Kotak Mahindra Bank, HDFC Bank, IndusInd Bank and Federal Bank — joined the Account Aggregator (AA) network that will enable customers to easily access and share their financial data. The framework for the same was created through an initiative of the finance minister-led Financial Stability and Development Council.

The framework establishes a three-tier structure: Account Aggregator, FIP (Financial Information Provider) and FIU (Financial Information User) based on the consent method. Customers will be able to avail various financial services from a host of providers on a single portal and can choose what financial data to share and with which entity.