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CHAPTER 2- INDIA'S MEDIUM-TERM GROWTH OUTLOOK: WITH OPTIMISM AND HOPE

Product and Capital Market Reforms 
Initiation of the reforms- 1991

• The government's introduction of the structural changes of 1991, AKA LPG reforms, was prompted by the macroeconomic imbalances of the late 1980s and early 1990s.
• The government introduced structural reform in 1991 due to macroeconomic imbalance of the late 1980s and early 1990s.
• The high combined deficits of the central and state governments, elevated inflationary pressure, and large and unsustainable current account deficit(CAD) led to a balance of payment crisis in the Indian economy.

Continuity in reforms with a renewed impetus-

• Over the 1990s decade, the product and capital market reforms made slow progress.
• Near the conclusion of the decade, the government gave them new motivation. Investments were further liberalised to promote foreign direct investment as the primary source of non-debt-creating capital inflows.
• The New Telecom Policy of 1999 completely overhauled the telecom industry.
• It was made available to the private sector, and the regulatory framework was tightened (TRAI).
• The reforms divided a government's regulatory and policy making powers from an operator's authority (BSNL).
• These changes laid the groundwork for India's IT industry development and had significant positive spillover effects on other economic sectors.
• During this time, the disinvestment and privatization policies also gained momentum.
• The government set up a dedicated Ministry to take this agenda forward. 
• It sold equity stakes in some CPSEs and privatized companies such as Maruti Udyog, Hindustan Zinc, Bharat Aluminum, and Videsh Sanchar Nigam Limited. 
• This period also marked the launch of the then-largest infrastructure project of independent India, the ‘Golden Quadrilateral’.

• The project gave the nation enormous economic advantages through greater industrial activity, trade, and economic growth.

• In addition, structural policies to solve  macroeconomic imbalances were developed.
• To address the historically large combined Gross Fiscal Deficit of the Government, the Fiscal Responsibility and Budget Management (FRBM) Act was passed.

0ne- off shocks overshadowed the reforms of 1998-2000-

India’s Participation in The Global Boom of 2003-08 

• The growth dividends from the reforms of 1998-2002 were realized once these one-off shocks dissipated. 
• The Indian economy was ready to contribute to and profit from global growth thanks to years of structural reforms.
• While the global growth averaged 4.8 per cent during 2003-2008, the Indian economy grew at more than 8 per cent on average. 
• The economic growth during the period was supported by strong capital inflows, which indicated favourable domestic and external factors. 
• Some of these included improved business performance, a favourable investment environment, favourable perceptions of India as a top investment destination, and enticing global liquidity conditions and interest rates.
• This mix of structural economic reforms and their delayed impact on economic growth has similarities to how the Indian economy is currently developing.

Reforms for New India-Sabka Saath Sabka Vikaas 

• Before 2014, most of the reforms focused on the product and capital market sectors.
• They were essential and kept going after 2014.
• But over the past eight years, the government has given these reforms a fresh perspective
• With an underlying emphasis on enhancing the ease of living, doing business, and improving economic efficiency, the reforms are well-placed to lift the economy's potential growth.
• Creating public goods, implementing trust-based governance, collaborating with the private sector for growth, and enhancing agricultural productivity were the overarching tenets of the reforms.
• This plan reflects a paradigm shift in the government's growth and development strategy, with the focus now on forming partnerships among various development stakeholders so that each can contribute to and profit from development (Sabka Saath, Sabka Vikaas).
• Creating public goods to enhance opportunities, efficiencies, and ease of living-
• Physical infrastructure- 
• The Golden Quadrilateral project's inception in the 2000s marked the start of India's infrastructure-heavy policymaking, which continued slowly for another ten years.
• The last several years have seen a huge increase in infrastructure spending and policy commitment, which slowed economic growth when the non-financial corporate sector could not invest due to balance sheet issues.
• In doing so, the government has created a solid foundation for growth and private investment in the ensuing ten years.

• Digital infrastructure: 

• Helped increase the economic potential of both people and companies.
• According to a recent article in the RBI's Monthly Bulletin, between 2014 and 2019, India's core digital economy grew 2.4 times that of the nation's overall economy.
• The Aadhar digital identity, the PM-Jan Dhan Yojana's linking of bank accounts with it, and the widespread use of mobile phones—collectively known as the "JAM Trinity"—have served as the nation's main pillars in the development of financial inclusion in recent years.
• The population covered with bank accounts increased from 53 per cent in 2015-16 to 78 percent in 2019-21 (as per NFHS). 
• International research demonstrates that it has taken nearly 50 years for nations at a similar stage of development to expand bank account access to the extent that India has. 

• Some of the most recent digital efforts, including the Account Aggregator framework and Open Network for Digital Commerce (ONDC), will expand the options for small firms to access the e-commerce sector and obtain credit, which will support the anticipated economic growth over the medium term.
• As an example, we can now track that, out of the 1.27 crore firms registered on the Udyam Portal, more than 93,000 micro-enterprises have developed into small enterprises, and 10,000 small enterprises have developed into medium enterprises during the past two years.
• For many of these groups, establishing an identity has made formal credit easier to get.
• The PM SVANidhi Scheme has provided first loans of 10,000 rupees to more than 32.7 lakh street vendors, and more than 6.9 lahks of these have received second loans of 20,000 rupees.
• Additionally, the formalization of commercial transactions has been made possible by digital systems like the Goods and Services Tax Network (GSTN) and the e-Way Bill system.
• The growth of formal enterprises is evidenced by the rising number of GST taxpayers, which would increase from 70 lahks in 2017 to more than 1.4 crores in 2022.
• The widespread use of the UPI digital payment system has made it easy to formalize transactions, even for the smallest of amounts.
• The economy will become more productive as a result of increased formalization thanks to easier access to financing and operational efficiency benefits.

• Trust-based Governance-
• RERA: 
• The Real Estate (Regulation and Development) Act (RERA), the other regulatory reform, is fostering a culture of open and honest dealing in the real estate industry.
• By introducing mechanisms for the swift resolution of disputes, registering real estate brokers and agents with the regulator, and enabling a single window clearing for prompt approvals to developers, the Act has completely changed the real estate industry.
• In the entire nation, the Real Estate Regulatory Authorities have resolved more than 1.06 lakh complaints. The RERA Act encourages additional investments in the sector with 99262 projects and 71514 agents currently registered.
• decriminalization of minor economic offenses under the Companies Act of 2013:  The government has shown its intention to encourage ease of doing business for domestic and international investors by imposing civil responsibilities for handling basic defaults that do not entail fraud or where the nature of the breach is merely procedural.
• The elimination of policy ambiguities has positive repercussions for enhancing public confidence in the administration.
• The government's commitment to ensuring a non-adversarial policy environment is demonstrated by its efforts to streamline processes by eliminating 25000 pointless compliances, repealing more than 1400 antiquated laws, doing away with the angel tax, and removing retrospective taxation on offshore indirect transfers of assets with Indian origins. These initiatives have boosted growth potential and boosted investor enthusiasm.
• Promoting the private sector as a co-partner in the development- 
• A fundamental principle behind the government’s policy in the post-2014 period has been the engagement with the private sector as a partner in the development process. 
• With stake sales and the successful listing of PSEs on the stock market during the past eight years, the government's disinvestment program has been resurrected. 
• During FY15 to FY23 (as of 18 January 2023), an amount of about ₹4.07 lakh crore has been realized as proceeds from disinvestment through 154 transactions using various modes/instruments.

• The privatization of Air India was particularly significant for re-igniting the privatization drive. 

• Evidence shows that privatization has improved labor productivity and the overall efficiency of the PSUs disinvested during 1990-2015.
• This led to the introduction of the New Public Sector Enterprise Policy for Aatmanirbhar Bharat, which aims to increase efficiency gains by limiting the involvement of the government in PSEs to only a few key vital sectors.