Reforms for growth: Independence Day announcements can go a long way

Among biggest announcements was the formation of a task force for next-generation reforms, which would evaluate all laws, rules, and procedures related to economic activities in a time-bound manner

Addressing the nation for the 12th consecutive time from the Red Fort, Prime Minister Narendra Modi made several announcements that would not only give a new impetus to the economy but also help make India a more secure nation. Among the biggest announcements was the formation of a task force for next-generation reforms, which would evaluate all laws, rules, and procedures related to economic activities in a time-bound manner. To be sure, Mr Modi had earlier talked about a deregulation commission, but the idea didn’t move forward. A thorough evaluation of rules and regulations can increase the ease of doing business enormously. To be fair, the government has been working on this front and has removed over 40,000 unnecessary complications and over 1,500 outdated laws. However, a comprehensive review is needed to bring rules and regulations governing economic activities in tune with the requirements of the 21st century. States must also be taken on board in this exercise. 

The other big announcement was the next-generation goods and services tax (GST) reforms. The GST system will likely move to a two-rate structure for the majority of goods and services (5 and 18 per cent), along with a higher rate (40 per cent) for sin goods. This will simplify the rate structure and boost compliance. Fewer slabs would also likely address classification and procedural issues.  The simplification of the rate structure and rationalisation of rates were long overdue, though the reported structure may have revenue implications, which will need to be managed carefully. Mr Modi also touched on India’s macroeconomic stability, one of the government’s biggest achievements since 2014. Sustained fiscal consolidation after the pandemic and improved expenditure quality prompted S&P Global Ratings to upgrade India’s sovereign rating after an 18-year gap. The upgrade will improve India’s attractiveness, particularly among foreign portfolio investors. 

However, in the near term, investment may be driven by trade tensions with the United States (US). Trade-related uncertainty is the biggest risk to growth at the moment. It is in this context that Mr Modi said that India would never compromise on the interests of farmers. It has been reported that India’s position on the farm sector was a major sticking point in trade negotiations with the US. Things, of course, became more complex after the US threatened to impose additional tariffs on India for importing Russian oil. While there is no doubt that India needs to protect the interests of its farm sector, which supports the livelihood of about half the population, it may remain a hurdle in trade negotiations with other countries as well. Thus, it would be important to evaluate the situation to strike the right balance. 

Against the backdrop of Operation Sindoor, the Prime Minister was expected to speak about defence. In this regard, he announced Mission Sudarshan Chakra, a national security shield capable of not only neutralising attacks but also striking back with force. The system will be researched and manufactured in India. He also spoke of a high-powered demography mission to check illegal migration in border areas. There is no debate that people from neighbouring countries should not be allowed to illegally settle on Indian soil. However, the mission must take adequate care that poor and marginalised Indians in these areas are not subjected to difficulties. Overall, if India is to move closer to the target of becoming a developed nation by 2047, it needs to grow at a much faster pace. While addressing trade-related issues is a priority in the short run, announcements like the GST reform and broader next-generation reforms will go a long way in increasing growth.