New set of reforms to empower Indian economy

The Government of India through a series of announcements over May 12-17 introduced several reforms to overhaul the policy, regulatory and procedural landscape in the country covering the financial system to the labour sector

May 18, 2020

The reforms come as part of a stimulus package worth nearly Rs.21 trillion (US$277 billion), equivalent to around 10% of India’s GDP

The all-encompassing reforms have focussed on Land, Labor, Liquidity, Laws, among other key factors, to drive economic opportunities

These reforms are designed to help bolster activities in key industries by attracting fresh investments that will also create new jobs

The stimulus package asserts the Government's commitment to delivering economic prosperity in the post-Coronavirus global economy

The Government of India through a series of announcements over May 12-17 introduced several reforms to overhaul the policy, regulatory and procedural landscape in the country covering the financial system to the labour sector. The reforms amend and relax existing provisions while introducing new rules that will allow improved opportunities in the economy. The measures are of vital importance as India braves the international as well as the domestic impact of the Coronavirus (COVID-19) pandemic. These reforms are designed to help bolster activities in key sectors by attracting fresh investments that will also create new jobs. This will help the world’s fastest-growing major economy preserve its global leadership.

The reforms come as part of a stimulus package worth nearly Rs.21 trillion (US$277 billion), equivalent to around 10 per cent of India’s GDP, meant to aid the sections of the society worst hit by the pandemic and open up new avenues of trade and investment in the post-Coronavirus economy. The pandemic has claimed over 325,000 lives between the beginning of December 2019 and the third week of May 2020 and has infected nearly 5 million people in 180 countries. Meanwhile, lockdowns enforced to arrest the spread of the disease have suspended the movement of humans and goods worldwide and is expected to cost the global economy as much as US$8.8 trillion, as per the Asian Development Bank (ADB). 

The initiatives seek to boost India’s socio-economic strengths while bolstering the capabilities of key industries, empowering India and her global partners in a post-COVID-19 global economy. The reforms have focussed on Land, Labor, Liquidity, Laws, among other key factors, to drive economic growth. The package aims to strengthen cottage industries and MSMEs while making it easier for foreign traders and investors to engage with India. The stimulus package asserts the Government’s commitment to delivering economic prosperity in uncertain times. Here are the details of the reforms:  

The reform measures are of vital importance as India braves the international as well as the domestic impact of the Coronavirus (COVID-19) pandemic.

Driving Growth in post-COVID World

Policy Reforms to fast-track Investment 

  • Fast track Investment Clearance through Empowered Group of Secretaries (EGoS)
  • Project Development Cell in each Ministry to prepare investable projects, coordinate with investors and Central/ State Governments
  • Ranking of States on Investment Attractiveness to compete for new investments
  • Incentive schemes for Promotion of New Champion Sectors will be launched in sectors such as Solar PV manufacturing; Advanced cell battery storage, etc

Upgradation of Industrial Infrastructure

  • Scheme will be implemented in States through challenge mode for Industrial Cluster Upgradation of common infrastructure facilities and connectivity
  • Industrial Land/ Land Bank to be made available for promoting new investments and making information available on Industrial Information System (IIS) with GIS mapping
    • 3,376 industrial parks/estates/SEZs in 500,000 hectares mapped on Industrial Information System (IIS)
    • All industrial parks will be ranked in 2020-21

Policy Reforms to Boost Efficiency

  • Rs.400 billion increase in allocation for MGNREGS to boost employment generation
  • Increased investments in Public Health, preparing India for any future pandemics
  • Technology Driven Education with equity post-COVID under the PM eVIDYA programme
  • Further enhancement of Ease of Doing business through IBC related measures
    • The minimum threshold to initiate insolvency proceedings raised to Rs.10 million (from Rs.100,000, which largely insulates MSMEs)
    • Special insolvency resolution framework for MSMEs under Section 240A of the Code to be notified soon
    • Suspension of fresh initiation of insolvency proceedings up to one year depending upon the pandemic situation
    • Empowering Central Government to exclude COVID 19 related debt from the definition of “default” under the Code for the purpose of triggering insolvency proceedings
  • Decriminalisation of Companies Act Defaults 
    • Decriminalization of Companies Act violations involving minor technical and procedural defaults (shortcomings in CSR reporting, inadequacies in board report, filing defaults, delay in holding AGM)
    • Majority of the compoundable offenses sections to be shifted to internal adjudication mechanism (IAM) and powers of RD for compounding enhanced (58 sections to be dealt with under IAM as compared to 18 earlier)
    • The Amendments will de-clog the criminal courts and NCLT
    • Seven compoundable offenses altogether dropped and five to be dealt with under alternative framework

Reforms for Corporate and Public Sector 

Ease of Doing Business for Corporates

  • Improvement in rankings in ‘starting a business’ and ‘insolvency resolution’ have contributed to the overall improvement in India’s ranking on World Bank EoDB 2020
  • Further key reforms to include – 
    • Direct listing of securities by Indian public companies in permissible foreign jurisdictions
    • Private companies which list NCDs on stock exchanges not to be regarded as listed companies
    • Including the provisions of Part IXA (Producer Companies) of Companies Act, 1956 in Companies Act, 2013
    • Power to create additional/ specialized benches for NCLAT
    • Lower penalties for all defaults for Small Companies, One person Companies, Producer Companies & Startups

Public Sector Enterprise Policy for a New India 

  • There’s a need for a new coherent policy—where all sectors are open to the private sector while public sector enterprises (PSEs) play an important role in defined areas 
  • Accordingly, the Government will announce a new policy whereby: 
    • List of strategic sectors requiring the presence of PSEs in the public interest will be notified 
    • In strategic sectors, at least one enterprise will remain in the public sector but the private sector will also be allowed
    • In other sectors, PSEs will be privatized (timing to be based on feasibility, etc)
    • To minimize wasteful administrative costs, the number of enterprises in strategic sectors will be revised to one to four; others will be privatized/ merged/ brought under holding companies

Corporate Law Measures for EoDB

Recent Corporate Law measures for Ease of Doing Business

  • In the first phase of decriminalization of Company Law defaults in 2018, 16 compoundable offenses were shifted to an in-house adjudication & penalty mechanism
  • Integrated Web-based Incorporation Form – Simplified Proforma for Incorporating Company Electronically Plus (SPICe +) introduced which extends 10 services of different Ministries and one State Government through a single form
  • Databank of Independent Directors launched
  • Withdrawal of more than 14,000 prosecutions under the Companies Act, 2013
  • Rationalization of Party Transaction related provisions 
  • Timely Action during COVID–19 to reduce compliance burden under various provisions of the Companies Act, 2013, as well as enable companies to conduct Board Meetings, EGMs & AGMs, Rights issue by leveraging the strengths of Digital India
  • In 221 resolved cases, 44 per cent recovery has been achieved since the inception of IBC, 2016 
  • Admitted claims amount to Rs.4.1 trillion
  • The realizable amount is Rs.1.8 trillion
  • Under IBC, 13,566 cases involving a total amount of Rs.5 trillion (approx.) have been withdrawn before admission under provisions of IBC till 29th Feb 2020

Government Reforms and Enablers

  • Health-related Steps taken so far for COVID containment 
    • Already announced –  Rs.150 billion 
      • Released to states –  Rs.41.1 billion 
      • Essential items –  Rs.37.5 billion 
      • Testing labs and kits –  Rs.5.5 billion  
      • Insurance cover of  Rs.5 million per person for health professionals 
    • Leveraging IT 
      • Roll out of e-Sanjeevani Tele-Consultation Services
      • Capacity Building: Virtual learning modules – iGOT platform 
      • Arogya Setu: Self-assessment and contact tracing
    • Protection to HealthWorkers 
      • Amendment in Epidemic Diseases Act 
      • Adequate provision for PPEs 
      • From zero to > 300 domestic manufacturers 
      • PPEs (5.1 million), N95 masks (8.7 million) HCQ tablets (110 million
  • Reforming Governance for Ease of Doing Business
    • Sustained measures taken have resulted in steadily improving India’s position in World Bank’s Doing Business Report rank from 142 in 2014 to 63 in 2019
    • This included streamlining processes such as granting of permits and clearance, self-certification and third-party certification among others
    • Government is working on a mission mode on the next phase of Ease of Doing Business Reforms relating to easy registration of property, fast disposal of commercial disputes and the simpler tax regime for making India one of the easiest places to do business

Tariff Policy & Privatisation

Tariff Policy Reform

Tariff Policy laying out the following reforms will be released: 

  • Consumer Rights 
    • DISCOM inefficiencies not to burden consumers 
    • Standards of Service and associated penalties for DISCOMs 
    • DISCOMs to ensure adequate power; load-shedding to be penalized 
  • Promote Industry 
    • Progressive reduction in cross-subsidies 
    • Time-bound grant of open access 
    • Generation and transmission project developers to be selected competitively
  • Sustainability of Sector 
    • No Regulatory Assets 
    • Timely payment of Gencos 
    • DBT for subsidy; Smart prepaid meters

Privatization of Distribution in UTs 

  • Sub-optimal performance of power distribution & supply 
  • Power Departments / Utilities in Union Territories will be privatised. 
  • This will lead to better service to consumers and improvement in operational and financial efficiency in Distribution 
  • Provide a model for emulation by other Utilities across the country

Boosting private sector investment in Social Infrastructure through revamped Viability Gap Funding Scheme 

  • The Government will enhance the quantum of Viability Gap Funding up to 30 per cent each of Total Project Cost as VGF by Centre and State/Statutory Bodies
  • For other sectors, VGF existing support of 20 per cent each from GoI and States/Statutory Bodies shall continue
  • Total outlay is Rs.81 billion
  • Projects to be proposed by Central Ministries/ State Government/ Statutory entities

Measures for Businesses (including MSMEs) 

  • Rs.3 trillion Collateral free Automatic Loans for Business, including micro, small and medium enterprises (MSMEs)
  • Rs.200 billion Subordinate Debt for MSMEs 
  • Rs.500 billion equity infusion through MSME Fund of Funds 
  • A new definition of MSMEs (in terms of investment and turnover)
  • Global tender to be disallowed up to Rs.2 billion 
  • Other interventions for MSMEs (related to marketing and liquidity, etc) 
  • Rs.25 billion EPF support for Businesses and Workers for three more months 
  • EPF contribution reduced for Business & Workers for three months – Rs.67.5 billion
  • Rs.300 billion Liquidity Facility for NBFC/HCs/MFIs 
  • Rs.450 billion Partial Credit Guarantee Scheme 2.0 for NBFC 
  • Rs.900 billion Liquidity Injection for DISCOMs 
  • Relief to contractors (extension of up to 6 months)
  • Extension of Registration and Completion Date of Real Estate Projects under RERA 
  • Rs.500 billion liquidity through TDS/TCS reductions 
  • Other Direct tax Measures 

Relaxation in Statutory and Compliance

  • RBI raised the Ways and Means advance limits for States by 60 per cent and enhanced the Overdraft duration limits
  • Issuance of all pending income-tax refunds of up to Rs.500,000, immediately benefiting around 1.4 million taxpayers
  • Implemented “Special Refund and Drawback Disposal Drive” for all pending refund as well as drawback claims

(Both the above measures amount to Rs.180 billion of refund)

  • Rs.150 billion for ‘India COVID-19 Emergency Response and Health System Preparedness Package’ to be utilised in three phases

Provided Relaxation in Statutory and Compliance matters

  • The last date for IT Returns extended to June 30, 2020
  • Filing of GST returns extended to June 30, 2020
  • 24*7 custom clearance offered till June 30, 2020
  • Relaxation for 3 months for debit cardholders to withdraw cash free from any ATMs, etc
  • Allowing payment before May 15, 2020, for Motor Vehicle and Health Insurance Policies
  • Mandatory Board meetings extended by 60 days till Sept 30 
  • Extraordinary General Meetings through Video Conference with e-voting/simplified voting facility 

Measures by the Reserve Bank of India 

  • Reduction of Cash Reserve Ratio (CRR) has resulted in liquidity enhancement of Rs.1.4 trillion
  • Targeted Long Term Repo Operations (TLTROs) of Rs.1 trillion for fresh deployment in investment-grade corporate bonds, commercial paper, and non-convertible debentures
  • TLTRO of Rs.500 billion for investment in investment-grade bonds, commercial paper, and non-convertible debentures of NBFCs, and MFIs
  • Increased banks’ limit for borrowing under the marginal standing facility (MSF), allowing the banking system to avail an additional Rs.1.4 trillion of liquidity at the reduced MSF rate
  • Announced special refinance facilities to NABARD, SIDBI and the NHB for a total amount of Rs.500 billion at the policy repo rate
  • Announced the opening of a special liquidity facility (SLF) of Rs.500 billion for mutual funds to alleviate intensified liquidity pressures.
  • A moratorium of three months on payment of installments and payment of Interest on Working Capital Facilities in respect of all Term Loans
  • Easing of Working Capital Financing by reducing margins
  • For loans by NBFCs to commercial real estate sector, additional time of one year has been given for extension of the date for commencement for commercial operations (DCCO)

Labour Codes – Benefits for Workers 

  • Universalization of right of minimum wages and timely payment of wages to all workers including unorganized workers – presently minimum wages applicable to only 30 per cent of workers
  • Statutory concept of National Floor Wage introduced: To reduce regional disparity in minimum wages
  • Fixation of minimum wages simplified, leading to less number of rates of minimum wages and better compliance
  • Appointment letter for all workers: This will promote formalization
  • Annual Health Check-up for employees
  • Occupational Safety & Health (OSH) Code also applicable to establishments engaged in work of hazardous nature even with a threshold of fewer than 10 workers
  • Definition of inter-state migrant worker modified to include migrant workers employed directly by the employer, workers directly coming to destination State of their own besides the migrant workers employed through a contractor
  • Portability of welfare benefits for migrant workers
  • Extension of ESIC coverage pan-India to all districts and all establishments employing 10 or more employees as against those in notified districts/areas only
  • Extension of ESIC coverage to employees working in establishments with less than 10 employees on a voluntary basis
  • Mandatory ESIC coverage through notification by the Central Government for employees in hazardous industries with less than 10 employees
  • Social Security Scheme for Gig workers and Platform workers
  • Re-skilling fund introduced for retrenched employees
  • All occupations opened for women and permitted to work at night with safeguards
  • Provision for Social Security Fund for unorganised workers
  • Gratuity for Fixed Term Employment – Provision of gratuity on completion of one year service as against 5 years.