The post-Covid era has seen old assumptions give way to a new set of challenges. Globally, inflation became a concern again due to supply chain disruptions and excessive stimulus in advanced economies. At the same time, tariff-related uncertainties increased considerably, creating new barriers for exports. It is in this tumultuous period that India has emerged as a global bright spot due to its policies.
The present government, now in its third term, has accelerated the pace of reforms by introducing major new measures, and also institutionalising them which is reflected in the state of the economy today. Due to limited space, we will discuss only some of the reforms undertaken in the third term so far.
In the face of persistent global uncertainties and headwinds, India has remained one of the fastest-growing major economies. The first quarter of FY 2025-26 recorded a robust 7.8 per cent growth. Growth is expected to be around 7 per cent this fiscal year. The government improved the quality of public expenditure by shifting the composition of spending decisively toward productive capital outlays. This is an important structural reform. The Union government’s indicators of fiscal discipline on deficit and debt-to-GDP have improved progressively. The quality of expenditure, approximated by capital expenditure as a share of total expenditure, has risen sharply from about 12 per cent in FY 2020-21 to nearly 22 per cent in FY 2024-25 (RE).
There have been significant tax reforms. While increasing capital outlays, the government has made a concerted push for boosting consumer sentiment by increasing the “nil tax” slab to Rs 12 lakh in the Union Budget 2025-26. Coupled with a standard deduction of Rs 75,000, this effectively raises the tax-free threshold to Rs 12.75 lakh. The income tax laws have been simplified to remove obsolete provisions, to make business easier and life simpler for citizens. Along with direct tax reforms, the latest GST reforms are a major step towards simplification of the GST structure. With rates fixed at two main slabs of 5 per cent and 18 per cent, this would leave consumers with higher disposable income. The government has made the four labour codes effective which will streamline and simplify labour laws.
Recently, RBI has undertaken reforms by announcing 22 additional measures aimed at strengthening the resilience and competitiveness of the banking sector, improving the flow of credit, promoting ease of doing business, simplifying foreign exchange management, enhancing consumer satisfaction, and internationalisation of the Indian rupee. Given the uncertainties surrounding trade, the government has a clear focus on export competitiveness and diversification. India is negotiating trade agreements with various partners. The most recent example is the India-UK Comprehensive Economic and Trade Agreement (CETA), which will considerably expand market access.
It is worth noting that over the past decade the government has undertaken far-reaching reforms such as IBC, GST, RERA, along with FDI reforms, the insurance sector, etc. The Prime Minister has announced from the ramparts of the Red Fort in August that we will fast-track domestic reforms. The economic policy push has laid the foundation for private sector investments and a revival has begun with new private sector capex plans rising sharply in the first half of 2025-26. There are major opportunities for private investment in AI (data centres), electronics, renewables, electric mobility, petroleum refining, chemicals, etc.
Thus, the third term of the government has introduced major fresh reforms, apart from benefiting from the earlier ones. It is also focusing on efficient implementation by institutionalising them. As compared to global headwinds, there are many domestic tailwinds such as low inflation, rate cuts and RBI measures to strengthen banking. The reforms undertaken and other steps taken will put India on a higher growth path with inclusion and sustainability in the short-, medium-, and long-term.
The writer is Chairman, Economic Advisory Council to the Prime Minister (EAC-PM)
