December 20, 2023
India is projected to become the third-largest economy in FY28, with a gross domestic product (GDP) of US$ 5 trillion
Tax measures, such as the restructuring of corporate tax rates, have considerably reduced the compliance burden
The sharp increase in the government's capital expenditure has supported growth and initiated the crowding-in of private-sector investment
The capital expenditure has been directed towards infrastructure-intensive sectors, improving connectivity across the country
The finance ministry recently declared that tax reforms and multiple other steps will aid India in becoming a US$ 5 trillion economy. These include a substantial increase in capital spending “without weakening fiscal discipline” and robust public digital infrastructure.
Government officials stated that India is projected to become the third-largest economy in FY28, with a gross domestic product (GDP) of US$ 5 trillion, as per the International Monetary Fund’s forecast, up from approximately US$ 3.7 trillion in FY23.
They further mentioned that tax measures, such as restructuring corporate tax rates, reducing tax litigation, and removing tax uncertainties, have considerably reduced the compliance burden and resulted in high revenue growth. The cut in the corporate tax rate, one of the lowest in the world at 15% for new manufacturing units up to March 2024, has increased companies’ reserves and freed up additional funds for investment. Furthermore, a liberalised Foreign Direct Investment regime has resulted in large inflows.
Similarly, indirect tax measures include the implementation of the Goods and Services Tax (GST), realising the goal of One Nation, One Tax, and One Market. This has expanded the formalisation of the economy and ensured a high collection of GST revenue.
The officials further stated that the sharp increase in the government’s capital expenditure, from INR 4.1 lakh crore in FY21 to the budgeted INR 10 lakh crore in FY24, has supported growth and initiated the crowding-in of private sector investment. This was further facilitated by the PM Gatishakti Scheme on infrastructure and logistics.
The capital expenditure has been directed towards infrastructure-intensive sectors, improving connectivity across the country. These measures have significantly improved the business climate and encouraged investments across sectors. Additionally, programs such as Make in India and Start-up India have been implemented to boost manufacturing, and the Production Linked Incentive (PLI) Scheme, now extended to 14 sub-sectors, has aided manufacturing growth.
The government has supported MSMEs to widen the manufacturing base and enhance inclusivity in growth. The officials also highlighted the progressive easing of doing business through the simplification of regulations, opening strategic sectors for private players, adopting a dedicated policy towards the privatisation of Central Public Sector Enterprises, and rationalisation of labour laws.
In the financial sector, measures ranging from implementing the Insolvency and Bankruptcy Code to recapitalisation and the merger of banks have enabled the corporate and banking sectors to have strong balance sheets for leveraging funds for higher investment, necessary for increasing India’s economic growth
Source: Economic Times