Modi govt @ 8 | Eight reforms that stand out

Representative image (Source: ShutterStock)

Since coming to power in 2014 the Narendra Modi government has brought about several economic reform measures through a mix of legislative and policy changes. Here are eight measures that stand out.

PM Jan Dhan Yojana: On August 28, 2014, Prime Minister Narendra Modi launched the ambitious Pradhan Mantri Jan Dhan Yojana (PMJDY), promising to end “financial untouchability” through the world’s biggest banking-for-all scheme.

The plan envisaged universal access to banking facilities with at least one basic banking account for every household, financial literacy, access to credit, insurance and pension facility.

The objective was to channel all welfare entitlement payouts such as NREGA payments to beneficiaries’ bank accounts through the Direct Benefits Transfer (DBT) scheme.

Eight years later the scheme has achieved far more than what was envisioned. As on May 21, 2022, there were 454.1 million beneficiaries banked so far with a combined deposit balance of Rs 167,145.80 crore.

Bad Bank: The government has set up a `bad bank’ as part of a broader strategy to clean up banks’ balance sheets. The National Asset Reconstruction Co (NARCL) or the government-backed bad bank as it is called, is fast emerging as a key player in managing distressed assets.

It will act as an aggregator of all stressed assets in the system. It is set up to buy the bad loans and other illiquid holdings of another financial institution. Once toxic assets are transferred to this entity, attempts for an early resolution by experts begin while originating banks can focus on their business.

NITI Aayog: National Institution for Transforming India—the successor to the Planning Commission—is fast evolving as the government’s go-to policy think-tank to deal with contemporary challenges, shunning the earlier “one size fits all” approach.

NITI Aayog was founded on the premise that the government should have a rather hands-off approach to foster the growth of private enterprises. Instead, the state or the government should focus its energy and resources on being an enabler by enacting the appropriate legislations and building a robust regulatory architecture to aid development and allow private enterprise to prosper.

Insolvency and Bankruptcy Code: The government enacted the Insolvency and Bankruptcy Code, 2016 that allows lenders to immediately suspend the board, strip promoters’ powers and enable time-bound recovery of loans.

The Code, which has undergone several amendments, creates time-bound processes for insolvency resolution of companies and individuals. If insolvency cannot be resolved, the assets of the borrowers are allowed to be sold to repay creditors.

The resolution processes are conducted by licensed insolvency professionals (IPs).  These IPs are members of insolvency professional agencies (IPAs), which also furnish performance bonds equal to the assets of a company under insolvency resolution.

Information utilities (IUs) have been established to collect, collate and disseminate financial information to facilitate insolvency resolution.

The National Company Law Tribunal (NCLT) adjudicates insolvency resolutions for companies. The Insolvency and Bankruptcy Board of India has also been set up to regulate functioning of IPs, IPAs and IUs.

ALSO READ: Modi Govt @ 8 | Indian democracy needs a recast to boost economic reforms

RERA:  Real Estate (Regulation and Development) Authority, Act 2016 was legislated that paved the way for setting up a quasi-judicial body, which makes it mandatory for builders to get approval from the authority before launching or even advertising a housing scheme.

Without doubt, the construction boom that accompanied India’s sizzling growth years created huge employment opportunities with multiplier effects across secondary sectors such as steel and cement. The ugly flip side, however, was that it also created business opportunities for unscrupulous builders and developers who often duped consumers by not delivering dwellings on time or of the required size and quality.

Many simply vanished after selling properties that never existed. The misery of short-changed customers only mounted with the EMI (equated monthly instalments) on loan on a property not owned yet creating additional burden. For the banking sector too, lending to realty projects became an extremely risky proposition as builders, large or small, were known for the diversion of funds.

Imperfect as it may be, the RERA system provides for punitive measures, (imprisonment of up to three years in case of promoters and up to one year in case of real estate agents). It makes it mandatory for all commercial and residential real estate projects to register with the proposed regulator before launching a project. This marked a major departure from the present where tales abound of harried and hapless home buyers who often find themselves at the mercy of builders.

GST: The Goods and Services Tax (GST), which was billed as independent India’s biggest reform initiative, will complete five years of rollout on July 1, 2022.

After nearly a decade of confabulations, GST kicked in at a grand midnight event in Parliament. The new indirect tax system held out the promise of dismantling fiscal barriers among states and turning India into a common national market for goods and services by consolidating a welter of local and central levies into a single tax.

ALSO READ: Modi govt @ 8 | Pandemic hides economy's past troubles as restart button hit again

Five years later, GST continues to remain a work in progress. A few pain points have been ironed out along the way, but many still remain. The primary among the remaining issues is, of course, the multiple slabs. Multiple slabs go against the conceptual construct of a uniform, unified, nation-wide tax system.

While multiple tax slabs continue to run against the GST’s definitional idea, it is the interpretation of rules by taxmen that have not only flummoxed many, but also raised major questions whether too much has been left open for unpredictability and inconsistencies to emerge as major irritants to small and medium businesses.

United Payments Interface (UPI): UPI, a system that powers multiple bank accounts into a single mobile application (of any participating bank), merging several banking features, seamless fund routing & merchant payments into one hood, was launched in 2016.

This has significantly eased payment systems and integration in both online and offline spaces and has now become the instrument of choice for millions.

The default payment option, even for small purchases such as buying agarbattis, for payment is now through India’s indigenously created UPI system. Most people now reach for the phone to make a payment at a shop rather than cash. UPI recorded its highest ever number of transactions in April 2022 at 5.58 billon, amounting to Rs 9.83 lakh crore. The next target for UPI is to process a billion transactions a day in the next 3-5 years.

Production-Linked Incentive (PLI) Scheme: The PLI scheme, launched in 2020, aims to turn India into a preferred global manufacturing destination. The scheme offers a cash incentive for three to five years on the incremental sale of goods made in India over the determined base-year sales.

Additionally, the identified beneficiaries are required to commit to a certain minimum investment in India.

With an aim to boost manufacturing, employment generation, import reduction and exports growth, the PLI scheme covers strategically significant sectors that have seen surging demand (solar, semiconductors/electronics, automobiles etc), and are critical to developing manufacturing capabilities (semiconductors, telecom gears, medical devices).

The scheme has so far generated investment commitments worth close to Rs 2.5 lakh crore across 14 sectors.

The government expects the scheme to generate additional output worth Rs 28.15 lakh crore and 6.45 million new jobs over the next five years. There has been a tremendous response across all the sectors for which the scheme has been implemented, said a senior government official. Total outlay for the scheme across the 14 sectors is Rs 1.97 lakh crore.

Incentives are based on incremental production/revenue, spread over five years on an average across sectors. Incentives are based on incremental production/revenue, spread over five years on an average across sectors.