Economic Reforms After 2014

Since 2014, economic reforms have been a cornerstone of policy agendas in numerous countries, reflecting a global imperative to adapt and thrive in an ever-changing economic landscape. The post-2014 period witnessed a surge in initiatives aimed at bolstering economic resilience, fostering growth, and addressing systemic weaknesses. From deregulation and privatization to innovation-driven strategies and inclusive development frameworks, nations worldwide have embarked on diverse paths to navigate challenges and capitalize on opportunities. These reforms, characterized by their depth and breadth, have reshaped economic paradigms, spurred investment, and propelled societies towards greater prosperity. As we delve into the multifaceted realm of economic reforms post-2014, it becomes evident that they signify not merely policy adjustments but transformative endeavors poised to redefine the socioeconomic fabric of nations.

Table of Contents

The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 is indeed an important piece of legislation in India aimed at curbing the generation and holding of undisclosed foreign income and assets. It was enacted to address the issue of “black money,” which refers to income or assets that have not been disclosed or are hidden from tax authorities.

Key points about this act include:

Objective: The primary objective of this Act is to unearth and tax undisclosed foreign income and assets. It targets individuals who have not disclosed their foreign income and assets to Indian tax authorities.
Tax and Penalties: Under this law, individuals are required to declare any undisclosed foreign income and assets and pay the required tax and penalties. The tax rates and penalties can be substantial.
Undisclosed Foreign Income and Assets: The Act encompasses various types of assets and income held abroad, including bank accounts, immovable property, investments, and any financial interest in any entity outside India.
Declaration and Compliance: The Act provided a compliance window for individuals to declare their undisclosed foreign assets and income by a specified deadline. Those who availed of this window could regularize their undisclosed assets by paying taxes and penalties.
Consequences of Non-compliance: Failure to comply with the provisions of the Act can lead to severe consequences, including heavy penalties and possible imprisonment.
Oversight: The Act established a mechanism to investigate and track undisclosed foreign assets and income.
Prevention of Money Laundering: The Act is part of India’s efforts to prevent money laundering and curb tax evasion.

It’s important to note that the government has been actively pursuing measures to combat black money, both domestically and abroad, and the Act is one of the steps taken in this direction. Individuals with undisclosed foreign income or assets should ensure compliance with the law and declare their assets within the prescribed timelines to avoid penalties and legal consequences.

Foreign Direct Investment (FDI) is indeed an important source of investment for the Indian economy, and it plays a crucial role in promoting economic growth and development. FDI occurs when foreign individuals, companies, or entities invest in Indian businesses or assets. Here are some key points regarding FDI in India:

Promotion of Economic Growth: FDI is seen as a driver of economic growth and development. It brings in much-needed capital, technology, and expertise, which can help Indian businesses expand, improve their productivity, and create jobs.
Sectors for FDI: India allows FDI in various sectors, but certain sectors may have restrictions or require government approval. Some sectors, such as defence, insurance, and retail, have seen increased liberalization in terms of FDI.
Attractiveness to Investors: India’s growing market, skilled workforce, and economic reforms have made it an attractive destination for foreign investors. Initiatives like “Make in India” and “Digital India” aim to promote and facilitate FDI.
FDI Inflows: As mentioned, India has seen an increase in FDI inflows in recent years. The government’s efforts to ease regulations and improve the business environment have contributed to this growth.
Government Policies: The Indian government has introduced various policies and reforms to attract more FDI. These include simplifying regulations, offering incentives, and improving the ease of doing business.
FDI Limits: While India welcomes FDI, there are limits on foreign ownership in certain sectors. In some sectors, like defence, the government has increased the permissible FDI limits.
Investor-friendly Environment: Creating an investor-friendly environment is a priority for the Indian government, as it aims to boost investment, create jobs, and enhance economic growth.

It’s worth noting that FDI can have a significant impact on various sectors, including manufacturing, technology, and services. The government continues to work on further liberalizing FDI policies to attract more foreign investment and promote economic development. The increase in FDI inflows is a positive sign of India’s growing appeal to foreign investors.

The Goods and Services Tax (GST) and demonetization were two significant economic reforms introduced during Prime Minister Narendra Modi’s tenure. Here’s a brief overview of these reforms:

Goods and Services Tax (GST):

Single National Market: GST aimed to create a single national market by unifying various state and central taxes into a single tax structure. It replaced a complex system of indirect taxes, reducing tax cascading.
“Make in India” Project: GST was expected to boost the “Make in India” initiative by simplifying tax compliance, reducing logistics costs, and making manufacturing and trade more competitive.
Simplified Tax Structure: It introduced a more straightforward tax structure with multiple tax slabs (0%, 5%, 12%, 18%, and 28%) for goods and services. This simplification was designed to make it easier for businesses to comply with tax regulations.
Automation: GST procedures were more automated and used information technology to streamline tax compliance. The introduction of the Goods and Services Tax Network (GSTN) was a significant step in this direction.
Reduced Compliance Costs: Businesses benefited from reduced compliance costs as the system eliminated the need to pay multiple taxes at each stage of the supply chain.
Benefit to Small Traders: GST was intended to benefit small traders and enterprises by simplifying tax procedures and reducing their tax burden.
Drawbacks and Criticisms: While GST brought several benefits, it also faced criticism for its complex multi-tier tax structure, compliance challenges during the initial phase, and technical glitches in the GSTN portal.

Demonetization, 2016:

Objective: The demonetization of high-denomination currency notes, specifically Rs. 500 and Rs. 1,000 notes, aimed to curb black money, counter the circulation of fake currency, promote digital transactions, and reduce financing for illegal activities, including terrorism.
Challenges: The sudden demonetization led to challenges for the general public, including long lines at banks, cash shortages, and difficulties in meeting the deadline to deposit or exchange old notes. It disrupted various sectors, particularly those dependent on cash transactions.
Long-term Impact: India saw an increase in digital payments and cashless transactions following demonetization. However, the move faced criticism for not achieving its primary objective of significantly reducing black money.
Ongoing Recovery: India continues to recover from the shock of demonetization. The impact of the policy is still a subject of debate, with varying opinions on its effectiveness in curbing black money.

Both GST and demonetization were significant policy changes that aimed to reshape India’s economic landscape. While they had certain benefits, they also faced challenges and criticisms that continue to be discussed in the public sphere.

Major economic reforms and policies were implemented in India, particularly during Prime Minister Narendra Modi’s tenure. These reforms have played a crucial role in shaping India’s economic trajectory. Here’s a recap:

Establishment of NITI Aayog: Replacing the Planning Commission, NITI Aayog was created to offer policy direction and suggestions to drive economic reforms.
Start-Up India Scheme: Launched on January 16, 2016, this scheme was designed to promote entrepreneurship and innovation in India. It provided benefits such as improved workflow, financial assistance, access to government bids, and enhanced networking opportunities for startups.
Reforms for Increased Competitiveness: Economic reforms, including initiatives like GST (Goods and Services Tax) and demonetization, aimed to increase competitiveness, enhance transparency, facilitate digitization, promote innovation, and ensure policy stability.
Historical Economic Reforms: India has witnessed several significant economic reforms since Independence, including the abolition of the privy purse, dismantling of the license raj, and banking reforms. These measures were pivotal in restructuring the economy.
GST Implementation: The Goods and Services Tax, rolled out in 2017, replaced multiple indirect taxes with a unified tax structure. It aimed to streamline taxation processes, reduce tax cascading, and create a single national market.
Demonetization: In November 2016, the government announced the demonetization of high-denomination currency notes. This move sought to curb black money, promote digital transactions, and combat the circulation of fake currency.

These reforms and policies have had a significant impact on India’s economic landscape. They reflect a concerted effort by the government to foster innovation, entrepreneurship, and economic growth, while also addressing issues related to transparency, compliance, and financial inclusion. As with any major economic shifts, the long-term effects of these reforms continue to be subjects of discussion and analysis.

The Insolvency and Bankruptcy Code (IBC) is indeed a significant piece of legislation in India’s financial and economic landscape. It was enacted in 2016 and has undergone amendments over the years to strengthen its provisions. The primary objective of the IBC is to provide a transparent, efficient, and time-bound mechanism for resolving insolvency and bankruptcy cases, and it has had a notable impact on the corporate sector and the financial system in India.

Key features and functions of the IBC include:

Speedy Resolution of Disputes: The IBC aims to expedite the resolution of insolvency cases, which was often a protracted and complex process in the past.
Empowering Lenders: The Code empowers lenders (financial creditors) by allowing them to take control of the defaulting company, suspend its board of directors, and initiate the insolvency resolution process.
Promoters’ Powers: Promoters of defaulting companies lose control over the management of the business once the insolvency process begins, and the resolution professional takes over.
Time-Bound Recovery: The IBC sets strict timelines for the resolution process, ensuring that it is completed within a maximum of 330 days, including litigation.
Alternative Insolvency Resolution for MSMEs: The 2021 amendment introduced a separate, more efficient insolvency resolution framework for Micro, Small, and Medium Enterprises (MSMEs), recognizing their distinct needs and challenges.
Licensed Insolvency Professionals: Resolution professionals, who play a crucial role in managing the distressed company during the resolution process, must be licensed and adhere to professional standards.
Adjudication by NCLT: The National Company Law Tribunal (NCLT) is responsible for adjudicating insolvency resolution cases for companies, ensuring transparency and legal oversight.

The IBC represents a critical shift in India’s approach to corporate insolvency, moving from a debtor-in-possession to a creditor-in-control model. This has significant implications for the behaviour of both borrowers and lenders, as well as the broader business environment in India. It is aimed at reducing the burden of non-performing assets on banks and financial institutions, promoting a culture of financial discipline, and enhancing the ease of doing business.

While the IBC has been generally well-received for its intended purpose, its effectiveness and implementation have also faced challenges and legal disputes, particularly regarding the distribution of funds during insolvency proceedings. Nevertheless, it remains a key component of India’s economic reforms.

The Real Estate (Regulation and Development) Act, commonly known as RERA, is a significant piece of legislation introduced to regulate the real estate sector in India. Enacted in 2016, its primary objective is to bring transparency, accountability, and efficiency to the real estate industry. Here are some key features and functions of RERA:

Transparency and Accountability: RERA mandates that all real estate projects must be registered with the regulatory authority, and the details of the project, including project plan, approvals, and progress, must be made available to the public.
Project Registration: Builders and developers are required to register their projects with the respective state’s RERA authority before advertising or selling any units. This ensures that only approved and legitimate projects are marketed to consumers.
Advance Deposit of Funds: Developers are required to deposit a percentage of the project cost in a dedicated bank account to cover construction costs. This ensures that funds are not diverted to other projects and are used for the intended purpose.
Adherence to Project Timelines: RERA sets specific timelines for project completion, and developers are held accountable for any delays. This helps in the timely delivery of properties to buyers.
Title of the Property: Developers must provide clear and marketable titles to the property, reducing the risk of disputes over ownership or legal rights.
Quality of Construction: RERA mandates that developers must maintain a certain standard of construction quality, ensuring that buyers receive the product they were promised.
Formation of Associations: The Act encourages the formation of residents’ associations, which play a role in the maintenance and management of common areas and facilities in a project.
Broker Regulation: Real estate brokers or agents must also register with RERA. This ensures that only qualified and authorized agents are involved in property transactions.
Resolution of Disputes: RERA provides for the establishment of Real Estate Appellate Tribunals to resolve disputes between developers, buyers, and other stakeholders.
Punitive Measures: In case of non-compliance or violation of RERA provisions, developers may face penalties, including fines, revocation of project registration, or even imprisonment.

RERA has had a positive impact on the real estate sector by instilling confidence in buyers, encouraging transparency, and holding developers accountable for their projects. It has also contributed to reducing fraudulent practices and improving the overall credibility of the industry.

However, like any major reform, RERA also faces implementation challenges and requires ongoing monitoring and fine-tuning to ensure its objectives are fully realized.

The Jan Dhan-Aadhaar-Mobile (JAM) trinity is a significant initiative launched by the Indian government to facilitate efficient and targeted delivery of subsidies, benefits, and services to citizens. Here’s a breakdown of each component:

Jan Dhan Yojana (Pradhan Mantri Jan Dhan Yojana – PMJDY): Launched in August 2014, PMJDY aims to provide financial inclusion to all households in India. Under this scheme, bank accounts are opened for individuals who do not have access to formal banking facilities. It also provides a RuPay debit card, an overdraft facility, and insurance coverage. This component addresses the financial inclusion aspect of the JAM trinity.
Aadhaar: Aadhaar is a unique 12-digit identification number issued by the Unique Identification Authority of India (UIDAI). It is linked to an individual’s biometric and demographic data. Aadhaar enables direct and targeted transfer of subsidies, benefits, and services to the intended beneficiaries. It also helps in eliminating duplicate and fake identities from government databases.
Mobile (Mobile Connectivity): Mobile phones serve as a crucial link in the JAM trinity. They facilitate direct communication between the government and beneficiaries. Mobile connectivity ensures that beneficiaries receive timely notifications, updates, and alerts related to their accounts and entitlements. It also enables them to access various services through mobile applications.

The integration of Jan Dhan accounts, Aadhaar, and mobile numbers has revolutionized the way government subsidies and benefits are delivered. It has several key advantages:

Targeted Delivery: The JAM trinity ensures that subsidies and benefits are directly delivered to the bank accounts of eligible beneficiaries. This reduces leakages and prevents the diversion of funds.
Reduced Leakages and Corruption: By eliminating intermediaries, the system minimizes opportunities for corruption and leakages in the delivery of benefits.
Cost-Effective: The digital infrastructure of Aadhaar and mobile connectivity significantly reduces the cost of administering and disbursing subsidies.
Inclusive and Empowering: PMJDY has brought marginalized sections of society into the formal banking system, providing them access to financial services and schemes.
Timely and Transparent: Beneficiaries receive real-time updates and notifications about transactions, ensuring transparency and accountability.
Emergency Aid during Crises: The JAM trinity proved invaluable during crises like the COVID-19 pandemic, enabling the government to swiftly provide financial assistance to those in need.

Overall, the JAM Trinity has been a transformative initiative, leveraging technology to enhance the efficiency, transparency, and inclusivity of government welfare programs. It represents a major step forward in achieving the goal of “Minimum Government, Maximum Governance.”

The government’s decision to reduce the base corporate tax rate in 2019 was a significant move aimed at boosting India’s competitiveness and attracting investments. Here’s a breakdown of the key aspects of this policy change:

Reduced Base Tax Rate: The base corporate tax rate was lowered from 30% to 22% in September 2019. This reduction was the most substantial in nearly three decades and was a step towards aligning India’s corporate tax rates with global standards.
New Manufacturing Firms: For newly incorporated manufacturing companies that began operations between October 1, 2019, and March 31, 2023, a lower tax rate of 15% was introduced. This incentive was intended to promote the growth of the manufacturing sector in India.
Competitiveness and Investment: By reducing the corporate tax rate, the government aimed to make India more competitive on the global stage. Lower tax rates can attract foreign direct investment (FDI) and encourage domestic companies to expand and invest in their operations.
Job Creation and Economic Growth: A more favourable tax environment for businesses can lead to increased investments, which in turn can stimulate economic growth and job creation. This policy change was expected to have positive ripple effects on employment and economic activity.
Enhanced Profitability: Lowering the tax burden on corporations increases their after-tax profits. This additional capital can be reinvested in the business, used for expansion, or distributed to shareholders.
Simplification of Tax Structure: The reduction in tax rates simplified the corporate tax structure, making it more straightforward and predictable for businesses.
Attracting Multinational Companies: A competitive tax regime can be a critical factor for multinational companies when deciding where to establish or expand their operations. India’s move to lower corporate tax rates was expected to make it a more attractive destination for multinational corporations.
Boosting Investor Confidence: The reduction in tax rates signalled the government’s commitment to creating a business-friendly environment. This move was seen as a positive signal to investors, both domestic and international.

Overall, the reduction in corporate tax rates was a strategic economic policy aimed at stimulating investment, driving economic growth, and enhancing India’s position as a preferred destination for businesses and investors.

The mega-merger plan announced by Finance Minister Nirmala Sitharaman in August 2019 was a significant reform in the public sector banking space. Here are the key details of the PSU bank merger:

Number of Banks Merged: Ten public sector banks were amalgamated into four larger entities as part of the consolidation plan.
Objective: The primary aim of the merger was to strengthen the banking sector. By creating larger and more robust banks, the government intended to improve their ability to support economic growth, handle risks, and compete on a global scale.
Benefits of Larger Banks: Larger banks have a greater capacity to absorb shocks and risks. They are also in a better position to lend to large projects and support the needs of a growing economy.
Reduction in the Number of Banks: The consolidation reduced the total number of public sector banks, streamlining operations and potentially reducing administrative costs. This also aimed to enhance the efficiency and effectiveness of the banking sector.
Synergies and Economies of Scale: Merging banks with complementary strengths and operations can create synergies, leading to improved efficiencies and economies of scale.
Enhanced Credit Availability: Larger banks are better equipped to support credit needs across various sectors of the economy, including industries, agriculture, and services.
Improved Risk Management: A consolidated entity can often implement more sophisticated risk management practices, reducing the likelihood of financial instability.
Global Competitiveness: Larger banks are better positioned to compete with international banks and financial institutions on a global scale. This is especially important in an increasingly interconnected and globalized financial system.
Smooth Transition: The government and regulators ensured a structured and phased transition to minimize disruptions and ensure the continuity of services for customers.
Stronger Regulatory Oversight: Larger banks often attract more scrutiny from regulators, which can lead to enhanced compliance and risk management practices.
Optimization of Resources: The merger aimed to optimize the allocation of resources, such as capital, talent, and technology, to maximize their impact on the economy.

Overall, the PSU bank merger was a strategic move to bolster the banking sector in India, aligning it with international best practices and strengthening its ability to support economic growth and development.

FAQs

Q: What were the major economic reforms initiated after 2014?

A: Post 2014, India witnessed significant economic reforms aimed at bolstering growth and development. Key initiatives include the implementation of the Goods and Services Tax (GST) to streamline indirect taxation, the Insolvency and Bankruptcy Code (IBC) to address non-performing assets, and the introduction of schemes like Make in India to promote domestic manufacturing.

Q: How did economic reforms after 2014 impact foreign investment?

A: Economic reforms post-2014 led to a surge in foreign investment inflows into India. Policies such as liberalization of FDI norms across sectors, ease of doing business initiatives, and the introduction of initiatives like the National Infrastructure Pipeline attracted foreign investors, fostering greater economic collaboration and boosting growth.

Q: What measures were taken to address the issue of unemployment?

A: Post 2014, the government introduced several initiatives to tackle unemployment. Schemes like Skill India aimed to enhance the employability of the workforce by providing skill development training. Additionally, initiatives like Startup India and Mudra Yojana facilitated entrepreneurship, creating avenues for job creation and fostering a culture of innovation.

Q: How did economic reforms impact the agricultural sector?

A: Economic reforms post-2014 included various measures to revitalize the agricultural sector. Initiatives such as Pradhan Mantri Fasal Bima Yojana aimed to provide crop insurance to farmers, while schemes like PM-KISAN provided direct income support. Reforms in agricultural marketing through e-NAM and contract farming laws aimed to enhance farmer incomes and modernize the sector.

Q: What role did economic reforms play in India’s global competitiveness?

A: Post 2014, economic reforms played a crucial role in enhancing India’s global competitiveness. Initiatives like the Make in India campaign aimed to boost manufacturing, while policies promoting digital infrastructure and innovation bolstered India’s position in the global digital economy. Furthermore, reforms in taxation, ease of doing business, and infrastructure development improved India’s attractiveness as a business destination, fostering greater international competitiveness.

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Economic Reforms After 2014 – UPSC Post-Independence Notes