Monday, 1 January 2018

Flashback 2017: Landmark Economic Reforms Unleashed this Year

The year 2017 has been an important year for the Indian economy in many ways. The incumbent Narendra Modi government has brought in some key economic reforms which have become a talking point all over the world. It has been a mixed year for the government as far as the Indian economy is concerned. While the government has pushed ahead with reforms that it sees as necessary for the good health of the economy in the long run, the short-term impact of the reforms has also been felt in good measure.

The historic year is divided into two equal halves: The pre-GST era and the post-GST era, when at the stroke of midnight on June 30 and July 1, the Goods and Service Tax (GST), the biggest tax reform since independence was launched by then-President Pranab Mukherjee and Prime Minister Narendra Modi from the historic central hall of parliament after a 14-year-long struggle.

The government managed to implement the Goods and Services Tax, touted as the single biggest taxation reform in the country. However, the structural reform came accompanied with pain for trade and industry caught off-gaurd by the rigours of new compliance procedures and translated into the lowest quarterly GDP growth figures under the Narendra Modi government. The large scale inventory clearance had caused an economy-wide slowdown, pulling down overall Gross Domestic Product (GDP) growth to a 13-quarter low of 5.7 per cent in the quarter-ended June. Thereafter, GDP growth raced faster in July-September at 6.3 per cent as companies shrugged off the inventory disruptions. While implementation of GST became a thorny issue, but the tax reform as a whole was welcomed by the industry.

However, the concerns over the GST and demonetisation did little to affect the equity markets, with the Sensex hitting record highs to breach the 34,000 mark thanks to ample global liquidity and rising inflows into mutual funds as the cash economy moved to organised channels after demonetisation. It was also a bumper year for stock market debutants, with as many as 37 initial public offerings raising more than Rs. 71,300 crore.

The other big change was dynamic fuel pricing. Starting June this year, India joined the league of select countries like the US and Australia where fuel prices are revised on a daily basis. The three state-owned oil marketing companies (OMCs) -- Indian Oil, Bharat Petroleum Corporation and Hindustan Petroleum Corporation are since rolling-out the daily dynamic pricing mechanism for petrol and diesel. Under the dynamic pricing scheme, petrol and diesel prices are revised on a daily basis in sync with global crude oil prices.

Earlier this year, a steep rise in petrol and diesel prices despite crude prices staying relatively low stirred up a row.

In October this year, the Finance ministry announced a mega Rs. 2.11 lakh crore recapitalisation plan for PSU banks over the next two years. Of the Rs. 2.11 lakh crore recapitalisation plan, FM Arun Jaitley said that Rs. 1.35 lakh crore would come from recapitalisation bonds, Rs. 18,139 crore from the Centre's budgetary funds and the remaining Rs. 58,000 crore would be mopped up from capital market by diluting the government's equity.

The icing on the cake came with the World Bank announcing earlier this year that India had jumped 30 places in its Ease of Doing Business rankings to find itself among the top 100 countries on the list. 

Latin Manharlal Group

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