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Transformative Reforms
Context:
In a bid to enhance India’s growth potential and global competitiveness, Finance Minister Nirmala Sitharaman has announced a series of “transformative reforms” across six key sectors (regulatory frameworks, the power sector, urban development, mining, the financial sector, and taxation) over the next five years.
Strengthening the Regulatory Framework
- Light Touch: Sitharaman emphasised that a “light-touch regulatory framework based on principles and trust” would unlock productivity and job creation.
- Updation: The government plans to update outdated laws to align with technological advancements and global policy shifts.
- High-Level Committee: To drive these changes, a high-level committee for regulatory reforms will be established to review all non-financial sector regulations, certifications, licenses, and permissions, with recommendations expected within a year.
- The goal is to enhance ease of doing business by reducing inspections and compliance burdens.
- States will also be encouraged to participate in this initiative.
- Investment Friendliness Index: Additionally, an Investment Friendliness Index of States will be introduced in 2025 to foster competitive and cooperative federalism.
- Meanwhile, under the Financial Stability and Development Council, a mechanism will be developed to assess the impact of existing financial regulations and improve their responsiveness to market needs.
Financial Sector Reforms
- Jan Vishwas Bill 2.0: The Finance Minister also unveiled the Jan Vishwas Bill 2.0, aimed at decriminalising over 100 provisions across various laws, building upon the Jan Vishwas Act 2023, which decriminalised more than 180 legal provisions.
- Revamped KYC: Further, a revamped central KYC (Know Your Customer) registry will be launched in 2025, simplifying the KYC process by ensuring uniformity and inter-usability across the financial sector.
- A unique KYC identifier linked to independent ID proofs will streamline periodic updates.
- Income Tax Bill: In a significant move, Sitharaman announced that a new income tax Bill will be introduced next week.
- The objective is to simplify tax compliance, enhance clarity, and reduce litigation.
- She reiterated the tax department’s commitment to a “trust first, scrutinise later” approach.
- FDI Limit: Moreover, the government has increased the foreign direct investment (FDI) limit in the insurance sector to 100%, up from the existing 74%.
- This enhanced limit will apply to companies that invest their entire premium earnings within India.
- Existing conditions and restrictions on foreign investments in insurance will also be reviewed and simplified.
Power Sector Reforms
- To strengthen the power sector, the government will incentivise electricity distribution reforms and enhance intra-state transmission capacity.
- States undertaking these reforms will be eligible for additional borrowing of up to 0.5% of their Gross State Domestic Product (GSDP), thereby improving the financial health and efficiency of electricity distribution companies.
Urban Development Initiatives
- As part of its urban transformation agenda, the government will establish an Urban Challenge Fund worth ₹1 trillion to support initiatives such as ‘Cities as Growth Hubs,’ ‘Creative Redevelopment of Cities,’ and ‘Water and Sanitation.’
- This fund will cover up to 25% of the cost of bankable projects, provided that at least 50% of the funding is secured through bonds, bank loans, or public-private partnerships (PPPs).
- An allocation of ₹10,000 crore has been proposed for the 2025-26 fiscal year.
Mining Sector Overhaul
- Reforms in the mining sector, including minor minerals, will be driven through the adoption of best practices and the introduction of a State Mining Index.
- Additionally, the government will introduce a policy for the recovery of critical minerals from tailings, optimising resource utilisation and enhancing sustainability in the mining industry.
By focusing on regulatory simplifications, financial sector liberalisation, and infrastructural development, these initiatives are expected to unlock new opportunities for businesses and accelerate the country’s economic growth over the next five years.
