Land, business environment reforms key to next phase of India's growth

Economists say easing land acquisition, improving the business environment and ensuring predictable investment policies could help India sustain growth towards Viksit Bharat

Resolving domestic policy bottlenecks and creating a more predictable investment environment through land reforms and an improved ease of doing business will be critical to Prime Minister Narendra Modi’s push for next-generation reforms, economists said.

 

In his Independence Day address on Saturday, Modi identified ‘Sapta Dhara’, or seven streams of strength — ranging from manufacturing, agriculture and infrastructure to soft power and global influence — that would drive the country’s economic transformation. “We are going to move aggressively towards the next-level reform in the coming days,” Modi said.

 

The Sapta Dhara outlined by the Prime Minister spans near-, medium- and long-term reform priorities for India’s Viksit Bharat vision for 2047, said Madras School of Economics Director and economist N R Bhanumurthy.

   

“The road ahead needs more micro reforms than macro reforms, and one such area is easing land acquisition by addressing the gap in land records,” Bhanumurthy said. “That is the reason why a few states, particularly in the west and the south, are doing better in the manufacturing sector compared to those in the north and east,” he added.

 

Land reforms assume greater significance amid the government’s aim of increasing manufacturing’s share of gross domestic product (GDP) to 25 per cent by 2035 from around 16-17 per cent currently.

 

“India would be better served by looking inward and addressing long-standing policy bottlenecks such as land acquisition and ease of doing business, especially amid external uncertainties,” said Crisil Chief Economist DK Joshi.

 

The government has initiated work to address gaps in land reforms. Finance Minister Nirmala Sitharaman, in the Budget for 2024-25 (FY25), announced fiscal support to states for three years for land-related reforms, including land administration, planning and management, urban planning, land usage and building bylaws.

 

However, land reforms remain a state subject, and state governments would also need to ramp up their efforts.

 

“Once the domestic business environment becomes more predictable, a stable and predictable foreign direct investment (FDI) policy could help meet India’s growing capital requirements,” Joshi said.

 

A predictable FDI policy assumes greater significance in the context of India’s termination of around 60 bilateral investment treaties (BITs) in 2016. Net FDI inflows into India have also slowed sharply over the past four years, falling from an annual average of around $40 billion between FY20 and FY22 to $7.65 billion in FY26, according to Reserve Bank of India data.

 

The government has initiated work towards a more predictable FDI policy and is likely to introduce an updated model BIT soon. Sitharaman had announced a review of India’s model BIT in the FY26 Budget.

 

Having addressed structural gaps, the government also needs to continue streamlining existing reforms, economists said.

 

“While reforms were announced last year in the goods and services tax (GST), streamlining must continue there: the government is yet to bring petroleum products under GST,” Joshi said. “The reform process should also focus on reducing compliance burdens and making implementation more uniform across states,” he added.

 

On labour reforms, the government should wait and assess the impact of the four labour codes before embarking on another round of changes, Bhanumurthy said. The Centre consolidated 29 central labour laws into four codes last year, aimed at simplifying the regulatory framework for employers and workers.

 

The recommendations suggest that the next phase of reforms may be less about creating new policy frameworks and more about removing implementation bottlenecks in existing ones, particularly those that constrain investment and the movement of capital into productive sectors.

 

Addressing these structural bottlenecks could help India sustain 8 per cent annual GDP growth, which would be required for the country to achieve its goal of becoming a developed economy by 2047, Joshi said.