India’s Economic Reform Agenda
(2014-2019)A Scorecard
START NOW
Cover photo by: Owen Young
Pundits sometimes act as if “economic reforms” are a light switch that India’s central government can turn on and off. In reality, the process of reforming the economy is nuanced, involving a diverse set of issues and actors. The following scorecard is a list of thirty big reforms that the Modi government confronted when it took office, and the status of each. Such a list can never be absolutely definitive. We hope this list helps the public understand the choices that are on the table, and that each reform will move at an independent pace. This scorecard will be updated on a monthly basis as we see tangible progress on individual reforms.
To Learn More About the Wadhwani Chair.
REFORMS BY SECTOR
SORT
-
Completed
-
Incomplete
-
In progress/partial success
-
Graphic
-
Video/Audio
Create a unified national tax on goods & services
Complete
DIFFICULTY: High
Will combine most of India's state and local taxes into a streamlined tax system.
The Goods and Services Tax went into effect nationwide on July 1, creating India's first-ever national market and replacing most state and federal taxes.
End retrospective taxation of cross-border investments
In Progress
DIFFICULTY: Medium
Eliminate the Revenue Department’s ability to retrospectively apply new tax laws. This provision, introduced in 2012, creates uncertainty for foreign investors.
In his February 29 Budget Speech Finance Minister Jaitley announced that the Revenue Secretary would chair a high-level committee that had to approve all retrospective tax demands and offered
a one-time dispute resolution opportunity for parties to current cases.
For a detailed analysis, click here
Deregulate Diesel Pricing
Complete
DIFFICULTY: Medium
Deregulating diesel pricing will lower government subsidies and also encourage the expansion of private hydrocarbon production.
The government deregulated diesel pricing on 10/18/2014.
Deregulate Natural Gas Pricing
In Progress
DIFFICULTY: Medium
Deregulating natural gas pricing will encourage the expansion of private hydrocarbon production.
On March 10, the Cabinet announced a new energy policy that switches to a revenue-sharing model (from a profit-sharing model), allows substantial pricing freedom for difficult fields, and eliminates minimum acreage requirements for new fields. While not total price deregulation, the policy offers new incentives for private hydrocarbon exploration.
Deregulate Kerosene Pricing
Incomplete
DIFFICULTY: High
Deregulating kerosene pricing will lower government subsidies and also encourage the expansion of private hydrocarbon production.
The central government has ordered state oil companies to continue to raise the subsidized price of kerosene each month until the subsidy is eliminated.
Remove government-mandated minimum prices for agricultural goods
Incomplete
DIFFICULTY: High
Removing minimum support prices will reduce the government’s subsidy burden and help end the over-production of staple grains.
For a detailed analysis, click here
Use Direct Benefit Transfer to deliver cash subsidies
In Progress
DIFFICULTY: Medium
Direct cash payments programs, such as pensions, should employ Direct Benefit Transfers to send funds to recipients.
The government has introduced a dedicated portal tracking its efforts to transition to DBT.
Use Direct Benefit Transfer to deliver goods subsidies
In Progress
DIFFICULTY: High
Programs where the government broadly subsidizes goods for targeted groups should be shifted to Direct Benefit Transfer programs to strengthen targeting and reduce diversion.
The government has introduced a dedicated portal tracking its efforts to transition to DBT.
Deregulate Fertilizer Pricing
Incomplete
DIFFICULTY: High
Deregulating fertilizer subsidies will lower government subsidies, increase private investment, and reduce over-fertilization that can erode soil viability.
On 5/13/15 the government announced a new four-year urea policy that will continue the price regulation regime.
Allow more than 50% foreign investment in Insurance
In Progress
DIFFICULTY: High
Allow foreign investors to own a majority stake in life and non-life insurance firms.
The 2016 Consolidated FDI Policy Circular allows up to 49% investment in insurance through the automatic route.
For a detailed analysis, click here
Allow more than 50% foreign investment in Defense
In Progress
DIFFICULTY: Medium
Allow foreign investors to own a majority stake in defense production firms.
The Ministry of Defence rejected the first-ever proposal to establish a 100% foreign-owned defense manufacturer in India.
For a detailed analysis, click here
Allow more than 50% foreign investment in Railways
Complete
DIFFICULTY: Low
Allowing foreign investors to own a majority stake in the railway-related businesses will encourage much-needed investment in infrastructure.
DIPP Press Note 8 (2014), issued 8/27/2014, opened most of the railways sector to 100 percent FDI.
Allow foreign lawyers to practice in India
Incomplete
DIFFICULTY: High
Allowing foreign law firms to establish offices and practice law in India will lower barriers to doing business in India.
Prime Minister Modi has reportedly requested the Ministry of Law and Justice to prepare a draft regulation that would open the Indian legal market to foreign lawyers.
Allow foreign investment in more construction projects
Complete
DIFFICULTY: Low
Relax the rules specifically governing foreign investment in construction projects, including minimum built-up space and lock-in periods.
DIPP Press Note 12 removed almost all restrictions on FDI in construction, including minimum project size, and reduced the lock-in period for capital to three years (or as soon as trunk infrastructure is completed, whichever comes first).
Reduce restrictions on foreign investment in multi-brand retail
In Progress
DIFFICULTY: Medium
FDI was opened in Sept. 20121. But rules governing foreign investment — minimum investment size, sourcing rules, and location — have precluded investment in this sector.
For a detailed analysis, click here
Reduce restrictions on foreign investment in single-brand retail
In Progress
DIFFICULTY: Medium
FDI in single-brand retail was opened1 in September 2012. However, foreign firms must source 30% of what they sell from local manufacturers.
Press Note 5 of 2016 allows FDI up to 100% via the government approval route, but requires that 30% of goods sold in the first 5 years be manufactured in India. This period is tolled 3 years for 'cutting edge' technology.
Allow more than 50% foreign investment in direct retail e-commerce
In Progress
DIFFICULTY: Low
While FDI is allowed1 in business-to-business e-commerce, and in e-commerce that uses a marketplace model, the sector is still closed2 to FDI when companies sell directly to consumers.
Press Note 3 of 2016 clarified that FDI is not allowed in business-to-consumer e-commerce, unless items are all being sold under a single brand and meet local-content requirements.
Sources:
1Department of Industrial Policy & Promotion
2Department of Industrial Policy & Promotion
Fully open the coal mining sector to private/foreign investment
Complete
DIFFICULTY: Medium
Coal mining for public sale was previously the exclusive right of government-owned “Coal India” and its subsidiaries.
Parliament approved the Coal Mines (Special Provisions) Act, 2015 on 3/20/2015, opening the sector to private—including foreign—investment.
Relax government controls over corporate downsizing
In Progress
DIFFICULTY: High
India’s Industrial Disputes Act sets a floor of 100 employees after which government permission is required to lay off workers. Some firms choose to remain below this level, giving up growth opportunities, in order to retain flexibility.
On March 16, 2018, the Ministry of Labour relaxed rules for fixed-term (contract) employees, allowing such labor in all sectors.
For a detailed
analysis, click here
Stop forcing banks to lend to “priority sectors”
In Progress
DIFFICULTY: Medium
Banks are required to direct 40% of loans to "priority sectors", including agriculture, small businesses, education, and housing. This slows growth by reducing capital available for the fastest-growing industries.
On September 21, 2018, the RBI slightly relaxed Priority Sector Lending rules to allow banks to share credit risk with non-banking finance companies.
Establish processes for thoughtful financial regulations
In Progress
DIFFICULTY: Medium
In 2013, the Financial Sector Legislative Reforms Commission called for stronger rules for regulatory interventions. This includes clearly stating the purpose of new regulations, mandatory notice & comment periods, and impact studies.
The Ministry of Finance recently solicited comments on a Task Force Report proposing the structure of a new Financial Redress Agency (FRA). First recommended by the FSLC, the FRA that will act as a consumer regulator of the financial services industry.
Make it easier to for states to use eminent domain to purchase land
In Progress
DIFFICULTY: High
The current law governing eminent domain requires that states obtain approval from at least 80% of residents before buying land, making it difficult to find plots for industry and infrastructure.
The new national land acquisition law, although it passed in the Lok Sabha, failed in the Rajya Sabha, and the government is no longer making this issue a legislative priority.
Extend the expiration date of industrial licenses
Complete
DIFFICULTY: Low
Onerous licensing is one aspect of India’s difficult “doing business” environment. Extending the validity of industrial licenses will decrease the frequency businesses will need to undertake this exercise.
DIPP Press Note 9 (2014), issued on 12/20/2014, increased the maximum validity of an industrial license from two years to seven years.
Make it quicker and easier for companies to go through bankruptcy
Complete
DIFFICULTY: High
India’s laws do not allow for a quick resolution of dead companies. The long process of winding up bankrupt companies contributes to overall legal paralysis, and locks up assets and intellectual property that could be deployed elsewhere.
The first case under the new Insolvency Code has begun in the Maharashtra High Court.
Offer one-stop shopping for clearances for new businesses
Incomplete
DIFFICULTY: Medium
The World Bank's Ease of Doing Business Report 20171 notes that it requires 12.9 procedures to start a business in India, compared to the South Asia regional average of 8.1.
Ensure that business owners can receive a permit in 10 days or less
In Progress
DIFFICULTY: Medium
According to the World Bank's Ease of Doing Business Report 20171, it takes 26 days to start a business, more than in any other country in South Asia.
Institute a mandatory 30-day "Notice & Comment" period for proposed regulation
In Progress
DIFFICULTY: Medium
A consistent, transparent regulatory environment gives businesses greater confidence.
The Ministry of Law & Justice sent a letter on 2/5/2014 to all ministries, urging them to comply with a 30 day notice & comment period and other rules. Implementation has been inconsistent.
For a detailed analysis, click here
Raise the ceiling on foreign institutional investment in Indian companies
Incomplete
DIFFICULTY: Low
The long-standing 10% limit on single institutional investors hinders investment in high-growth Indian companies. SEBI raising this threshold — even to 20% — will unlock significant liquidity for listed Indian companies.
In his February 29 Budget Speech Finance Minister Jaitley raised the investment limit for foreign portfolio investors in public sector enterprises from 49% from 24% and allowed FPIs up to 100% of each tranche of securities released by asset reconstruction companies. Neither change has yet been notified by RBI.
Remove sectoral investment limits
Complete
DIFFICULTY: Low
India historically reserved dozens of products and sectors for small and medium businesses. The rules prevented successful businesses manufacturing these goods from expanding and limited their access to capital.
On 4/10/2015 the government removed the last 20 products from the reserved list.
Conduct transparent auctions of telecom spectrum
Complete
DIFFICULTY: Medium
Government must conduct auctions in a way that allocations of the spectrum being auctioned off are transparent and create a barrier to participation.
India has now conducted multiple free and fair telecom auctions with no complaints from private-sector participants.