A Decade of Economic Reforms
Have they Made a Difference?
Dr. RAJAN KATOCH
Many economic reforms have been initiated by the Government in the past decade in India. There have been a flurry of expert reports and opinion pieces both domestic as well as international on the impact of these reforms. International opinion has ranged from applauding India’s economic reforms over the last decade as “transformative” to holding that the reforms story is overstated.
What are the facts? Have the reforms worked? Have they made a difference to the people? There have been many hits, and some misses. In this piece, we look at some of the hits that have directly affected the common man.
There are at least four such big reforms that have clicked. These are: the inflation targeting regime, implementation of the Goods and Services Tax (GST), digital payment infrastructure and direct benefit transfers.
The first is the inflation targeting regime. This usually does not get the attention it deserves. Yet, price rise affects the common man the most, and therefore has always been an important issue in India. We can recall the days when the survival of governments could be endangered by the price of onions!
The inflation targeting regime was put in place in the leadership of the late Arun Jaitley as Finance Minister. The Government along with the Reserve Bank of India adopted for the first time in 2016 an inflation targeting framework. A specific inflation target was set. The target, based on the rise in the Consumer Price Index, was set at 4 per cent per annum (with an upper limit of 6% and a lower limit of 2%).
To recommend monetary policy to achieve the inflation target, an expert Monetary Policy Committee (MPC) was set up. The MPC has been doing its job reasonably well. Except for brief periods in the pandemic and post-pandemic period when it hit 7%, the inflation rate has generally stayed within the mandated range. This is quite something, considering that between 2010–13, inflation was ranging between 10–12%. A regime of low and predictable increase in prices has been put in place now, and this is good news for the common person.
The second is the implementation of the Goods & Services Tax (GST) with the objective of “one nation, one market, one tax.” GST is a unified tax system that replaced multiple indirect taxes levied by both the Central and State Governments. Earlier the taxpayer (whether producer, trader or consumer) ended up paying multiple indirect taxes with cascading effects. Post-GST, we now have just one set of indirect taxes that takes into account taxes paid at earlier stages of production and sale.
GST implementation had considerable initial technical glitches. Yet, today it is at a stage that it can be said that it is working out well. A more transparent, trust based online system has been developed, and this benefits honest taxpayers. Tax collections have been growing rapidly. Average total monthly collections are now running at about Rs. 1.60 lakh crores, from the Rs. 90,000 crores at the commencement of GST in 2017. Further, the average buoyancy of GST has been reported at about 1.25, as against a tax buoyancy of indirect taxes of less than one in the period before GST came into force. A tax buoyancy of more than one indicates that the rate of growth of tax collections is more than the rate of growth of GDP. More money in the coffers has enabled the government to spend more on development.
The third is the creation of a digital payments infrastructure. The near universal rollout of Aadhaar as a verifiable individual digital identity has opened up immense possibilities. The Aadhaar based India Stack digital public infrastructure has spawned the highly successful United Payments Interface (UPI). The result has been the emergence of a secure, frictionless and highly convenient mode of instant payments for everyone.
From its pilot launch in 2016, UPI usage has grown almost exponentially. In May 2023, over 9 billion transactions took place with a transaction value of over Rs. 14.87 lakh crores, testifying to the wide acceptance of the system. Globally, UPI has set a precedent in financial technology innovation, and made life easier for everyone with a mobile phone from householders down to the smallest vendors in rural areas.
The fourth successful reform initiative has been the deepening of financial inclusion and the streamlining of welfare payments through the Jan Dhan/Aadhaar/Mobile (JAM) trinity and Direct Benefit Transfers (DBT). Linking up the three has enabled India’s widespread mobile usage and the Aadhaar unique identity platform to be used to easily open bank accounts and extend banking services to the less privileged.
This trinity is game-changing in the delivery of government subsidies and welfare benefits under different schemes. Prior to the DBT regime, procedures were relatively complicated, and there were many intermediaries between the release of funds by the government and the receipt of the funds by the beneficiary. “Leakages” in delivery of funds was accepted as inevitable. The perception was that only a fraction of the funds reached the person for whom they were intended to reach, and sometimes they did not reach the correct person at all.
DBT works because now there is surety about the digital identity of a beneficiary. And funds can be seamlessly transferred digitally by the government directly to the bank account of the beneficiary. This minimizes the chances of leakage. This is a major pro-people reform that touches those who need help the most.
There have been other reform initiatives. Some have worked, some have stalled, and some have not had the intended outcomes. That is a story for another day. For now, it is worth appreciating that the implementation of these four reform initiatives have in just a few years changed for the better the lives of the people at all levels.
And that, for any system, is no mean achievement!
