What has been successful so far?
Many policies have been introduced, and a selection of key reforms in the past 12 months that have been considered successful include:
Market-friendly changes in laws for FDI have relaxed restrictions, which have allowed more FDI into the insurance, railways and defense sectors. Limits for FDI in both the defense and insurance sectors, which raised from 26% to 49%, brought in more foreign flows. This will help with efficiency and further expansion if needed. The railway sector has been opened up to 100%, and rules for FDI in construction have been relaxed, with minimum threshold levels of foreign investment in amount and size of projects reduced, opening up the country to further improvements in infrastructure. Twelve-month rolling FDI inflows increased 48.3% in May, compared to a year ago. Improvements to various sectors and industries should eventually follow.
Energy sector reforms have also been pushed forward on themes of efficiency and improvement in pricing mechanisms.
The collapse in oil gave the government an excellent opportunity to deregulate diesel prices, which it has taken to finally free itself of expensive subsidies. While politically and publicly unpopular for a number of years due to the effect it would have on energy prices, shifting to market-driven prices and cutting oil subsidies have saved the government a significant amount, greatly reducing the fiscal deficit at a time when it was needed and freeing up spending for other sectors.
Gas pricing mechanisms have also been revised to allow more nimble movements based on global gas prices. Prices have already been revised twice since the formation of the new government.
Coal and mining have seen reforms shift toward increasing transparency, reducing corruption and cutting bureaucratic red tape. The issue of coal mining rights has dogged the previous government, causing a scandal when it was revealed that certain entities benefitted from the government’s allocation systems. These issues came to a head when the previous allocation system was deemed illegal and scrapped.
No longer are public sector companies the only ones allowed to mine coal and sell to the market. Private companies are now also permitted to be involved in the process. These changes have resulted in better coal supplies, which have been considered as positive moves to attract investment.
Similar changes have been pushed through for mining and mineral concessions in general. Previous rights were granted by discretion, but the new auction system should increase transparency and remove the temptation for kickbacks.
- Project administrative reforms
Much effort has been placed into encouraging investment and ridding India of its poor reputation for the ease of doing business in a bid to revitalize capital expenditures and the investment climate. The government has rolled out administrative reforms such as the online e-biz portal that consolidates several government services for business setup in one place, helping reduce the time for approval and to attract investment. Rules for environmental approvals have also been eased along with an online system for clearance to speed up project approvals.
- Already some positive results can be seen with new project announcements accelerating after a long period of stagnation.
Related to these attempts at turning the industrial environment around have been changes in labor laws to increase business flexibility while still protecting workers. As an example, the apprenticeship policy has been made more flexible, reducing punishments for violations and encouraging training for workers.
Smaller businesses will see less harassment from authorities and gain the ability to turn out more highly skilled workers, improving the labour market.
- Social welfare programme revamps
Helping the less privileged countries has also featured prominently. Revamping social welfare programmes has also begun in a bid to drive productivity and growth. Financial inclusion programmes to provide a bank account for Indian households as well as new pension and insurance programmes should assist in encouraging household savings and address poverty issues.
Price stabilisation measures to help check inflation issues in the event of poor monsoons have been established, and there has been a huge rationalisation of subsidies. Direct transfer of benefits has greatly improved the efficiency and administration of programs helping the poor, while also saving the government money by removing the old, poorly administered subsidy system.
