Game-changing reforms that have shaped Indian economy

India has seen a flurry of reforms over the past couple of years. To start with, the government’s push to drive the adhaar framework for the transfer of social sector benefits (on the lines of social security number in the US) has paid off handsomely and will continue to deliver in the days ahead. When implemented for distribution of LPG subsidy, it helped plug leakages and eliminate fake accounts, thus saving over Rs 50,000 crore on LPG subsidy.

Moreover, voluntary renunciation of subsidy by households with income greater than Rs 10 lakh per annum has helped the government improve its LPG distribution network in the hinterlands, thus improving productivity (in addition of goodwill, if any) of the 2 crore housewives by replacing conventional cooking fuel like wood or charcoal with LPG and preventing the usage of highly polluting fuel.

Application of Adhaar has opened up lots of avenues for the government to ensure that social spending reaches the target audience, contain subsidy outflow, which in turn will ensure that the resources are put to rightful use.

Diesel price de-regulation in October 2014 enabled the oil marketing companies (OMCs) to raise retail prices of diesel periodically, pass on the change in prices in international crude prices and recoup the losses.

Earlier, diesel was responsible for 50 per cent of the under-recoveries of the OMCs. Though OMCs were compensated for their losses by a combining subsidies from the government and government-run upstream oil and gas companies such as ONGC, Oil India and GAIL, there used to be uncertainty in timing and amount of subsidy disbursement, which had adversely affected cash flows of OMCs. After de-regulation, finances of the OMCs improved significantly, enabling them to concentrate on capacity expansion and growth strategies. OMCs are the biggest beneficiaries of the de-regulation; while the government has also benefitted as deregulation reduced subsidies, thus improving the balance sheet and enabling it to invest in productive assets and projects.

Moreover, the de-regulation created a level-playing field for private refiners, which are now in position to sell their products at par with public sector OMCs in the domestic retail market.

India, still, is far below in the list of per capita automobile ownership compared with developed countries like US and Europe and developing countries such as China. As the economy improves, the demand for automobiles and hence, fossil fuel would gallop. The oil marketing companies would be big beneficiaries, as demand for fossil fuel rises and one can participate in the India growth story by investing in the OMCs, both public and private.

The government allowed 49 per cent FDI in insurance in March 2016, thus giving a much-needed boost to this capital-starved sector. Being a highly capital-intensive sector, the insurance market is underpenetrated and underserved in India.

The insurance market is primarily dependent on push products, tax incentives and mandatory buying for sales. An increase in FDI in insurance has attracted global players to invest in the Indian insurance market – the end beneficiary being the common man, who gets quality product at reasonable price.

Moreover, the benefits of insurance will reach a larger section of people, thus increasing penetration and density of the insurance market. Raising FDI limit in insurance to 49 per cent has increased insurance penetration, which is currently at around 3 per cent of GDP with respect to overall premiums underwritten annually. This is far less than say Japan or the UK, for whom the figure stands at 8 per cent. Increased FDI limits have strengthened the existing insurance companies with more capital and they are now investing to penetrate the underpenetrated markets, thus creating more jobs.

Besides, the insurance sector has been instrumental in mobilising national savings and routing them to investments in different sectors of the economy. It has the capability to raise long-term capital from the masses as people invest their hard-earned money for around 30 years or even more, which can be invested in building the much-needed infrastructure of the country. Thus an increase in FDI in insurance only helps building Indian economy. The companies invested in insurance- both life and non-life would be a big beneficiary of further opening up of the insurance market for foreign capital.

Indian bankruptcy laws were relatively poor before implementation of Insolvency and Bankruptcy code 2016. The Code has created a unified framework for resolving insolvency & bankruptcy matters.

This, coupled with recent banking regulation ordinance, is a key element in the government's strategy to address the bad debt problem of the banking sector.

The code will enable quick and prompt action at the early stage of debt default by a company, thus maximizing the recovery possibility and extending to individuals, companies, limited liability partnerships and partnership firms in a time-bound manner.

In addition to creating a conducive environment for dealing with failing businesses, the now, robust laws would create jobs of specialist professionals who will help the financial entities deal with such incidents. With the implementation of Insolvency and Bankruptcy code 2016, the economy has equipped itself for the long haul.

The banking and financial sector, per se, has been a big beneficiary of the implementation of Bankruptcy code. The goods and services tax ( GST) is scheduled for implementation on July 1, 2017 and it would subsume nearly 13 different taxes, enabling a drop in compliance cost and reduction of time.

GST is a destination-based tax levied on the value addition in the goods and services done at each stage and comes equipped with input tax credit mechanism. Implementation of GST would convert India into ‘One nation, one market’, sharply reducing the logistics cost in transportation of goods. Implementation of GST would improve the ease of doing business in the country and prevent unhealthy competition among states to attract manufacturing bases.

Having in-built input tax credit system, the GST will reduce the cascading effect of tax, thus reducing the cost of product/ goods for the end consumer. Moreover, it will ensure that the system works efficiently with little chances of corruption and tax evasion.

GST will make the unorganised players less competitive against the organised ones, thus encouraging the former to join the mainstream. Shift to formal economy will be seen in sectors like leather goods & footwear, plywoods, sanitary ware, healthcare and clinical pathology, packaged foods, textiles etc.

Different sectors that would benefit from implementation of GST are logistics, FMCG, media and entertainment, retail, cement, textiles and consumer durables.

Overall, the Indian economy has come a long way after it was liberalised way back in 1991. Currently a $2 trillion economy, it is growing at around 7-7.5 per cent CAGR.

With full implementation of the above-mentioned reforms and a few more that are in the offing, India has the capacity to cross the double-digit growth mark.

Having known the probable beneficiaries of the implementation of these reforms, one should not lose the chance to invest and create wealth over long term!