With an exceptional pace of growth, India ranks among the world’s most rapidly expanding economies in 2022. According to the International Monetary Fund (IMF), India is projected to experience a growth rate of 5.9% in FY 2023-24 and maintain an average growth rate of 6.1% over the next five years.
Notably, this growth has been achieved despite facing considerable hurdles in the global environment, such as renewed disruptions of supply lines due to increased geopolitical tensions, the synchronized tightening of global monetary policies, and inflationary pressures. This achievement serves as compelling evidence that India has effectively overcome these challenges.
Furthermore, as per the latest report from Morgan Stanley, published in May 2023, the Indian economy is exhibiting a decreased susceptibility to external factors that lie outside its jurisdiction. Notably, India’s reliance on global capital market flows has declined, and its responsiveness to shocks originating from the US market, such as changes in interest rates by the Federal Reserve or recession, seems to be waning. In essence, the Indian economy is effectively safeguarded against international risks emanating from the Western hemisphere.
The government’s unwavering commitment and dedicated efforts over the past few years have paved the way for this remarkable economic growth. In the past few years, Government of India has implemented more than 7,000 business-oriented reforms. Not just this, recognizing the significance of cultivating a supportive environment for business and entrepreneurship, policy measures have been implemented to facilitate foreign direct investment (FDI) entry, streamline the financial system, eliminate unnecessary procedures, and enhance transparency in business operations.
Additionally, the government has been consistently laying the foundation for a digitally-driven and technology-enabled economy to extend the formal economy’s reach, thereby enhancing the efficiency of the informal sector and expanding the country’s tax base.
Outlined below are the notable policy changes implemented by the government within a span of less than a decade, aimed at fortifying the economy:
Tax Reforms
The government introduced the Goods and Services Tax (GST) on July 1, 2017, unifying all 36 states and union territories of India into a single market. By simplifying and streamlining tax structures, GST has effectively lowered the costs associated with local production. Its implementation is anticipated to enhance overall efficiency and productivity, consequently attracting increased foreign direct investment (FDI). The streamlined tax system has motivated corporations to broaden their operations, infuse capital into new projects, and spur economic expansion. In fact, for the fiscal year 2022-23, GST revenue has exceeded Rs. 18 lakh crore, reflecting a year-on-year growth of 22%. This record-breaking figure for indirect tax collection underlines the strong trust and confidence taxpayers have in the system.
Efficient Business Approval Procedures
A significant part of enhancing the business environment in India involves easing the process of business registration. The implementation of digital registration systems, like the Ministry of Corporate Affairs’ Spice + and the Goods and Services Tax (GST) portal, have substantially decreased bureaucratic red tape and reduced the time necessary to set up a company. This more efficient process fosters entrepreneurial spirit and aids in the expansion of fresh businesses across the nation. Rapid and uncomplicated environmental and other related approvals have also contributed to a reduction in processing times.
Digital Transformation
The government has actively shifted various systems, including taxation and company incorporation, to online platforms through the implementation of e-governance. To enhance the Ease of Doing Business and establish standardized processes, the Ministry of Corporate Affairs (MCA) has introduced significant initiatives aimed at delivering faster and more transparent procedures. These initiatives have been implemented to streamline processes and improve efficiency:
- The introduction of the web-based service called Reserve Unique Name (RUN) has facilitated a swift and convenient name reservation process.
- The allotment of Director Identification Number (DIN) has been re-engineered to simplify the process by incorporating it within the combined SPICe form.
- MCA fees for company incorporation have been waived, providing an exemption to support ease of doing business.
- An E-KYC drive has been initiated to ensure directors of all companies undergo electronic Know Your Customer (KYC) verification
New Insolvency Code
The implementation of the Insolvency and Bankruptcy Code 2016, enacted on May 28, 2016, has consolidated, and unified all regulations and laws pertaining to insolvency under a single legislation. This significant step has elevated India’s bankruptcy code to align with international standards. The code aims to foster entrepreneurship by offering companies the opportunity to navigate financial challenges and pursue restructuring while continuing their operations. Moreover, it has instilled greater investor confidence, enhanced credit availability, and reinforces procedures, thereby promoting a conducive business environment.
FDI Policy Changes
The revisions introduced in Foreign Direct Investment (FDI) have enhanced the liberalization and simplification of the FDI policy, fostering a more business-friendly environment and attracting greater inflows of foreign direct investment. The changes listed below are further expected to contribute to the expansion of investment, income, and employment opportunities, promoting overall economic growth:
- Single Brand Retail Trading now permits 100% FDI under the automatic route.
- Construction Development allows 100% FDI under the automatic route.
- Foreign airlines are now permitted to invest up to 49% in Air India under the approval route.
- Power Exchanges now allow investment from FIIs/FPIs through the primary market.
- The definition of ‘medical devices’ has been amended in the FDI Policy.
Such initiatives have uplifted investor confidence, leading to an influx of investments into India. Consequently, the country witnessed an unprecedented level of Foreign Direct Investment (FDI) in FY22, with an influx of US $83 billion. This represents an impressive increase of 84% from the US $45 billion recorded in FY 2014-15. Additionally, India experienced record-breaking service and merchandise exports, registering a growth of 150% over the past nine years. The figures climbed from $310 billion in 2014-15 to an all-time high of $775 billion in 2022-23.
Infrastructure Development
The endeavors focused on enhancing infrastructure and establishing connectivity across India are gaining significant traction.
- PM Gati Shakti – National Master Plan launchedto improve last-mile and multi-modal connectivity throughout the country.
- Addition of over 53,868 kilometers to its National Highways network between 2014 and 2023
- Introduction of 400 world-class semi-high-speed Vande Bharat trains, out of which 16 are already operational
- Aviation department plans to develop and operationalize 220 airports in the next five years
In conclusion, India’s exceptional economic growth in less than a decade is a testament to the country’s resilience, visionary policies, and determined efforts. With a focus on reforms, infrastructure development, ease of doing business, and attracting foreign investment, India has emerged as one of the fastest-growing economies in the world. As the nation continues to strive for progress and inclusivity, the prospects for sustained economic prosperity and a better quality of life for its citizens appear promising.
