UPA Government and NDA Government: 8 Economic Reforms

The following points highlight the eight main economic reform measures undertaken by the UPA Government and NDA Government. Some of the economic reform measures are: 1. Reform Measures undertaken in the CMP 2. Financial and Banking Sector Reforms of the Government 3. Seven-Point Economic Agenda of UPA Government Recent Attempt for Tax Reforms: GST and DTC and Others.   

Economic Reform Measure # 1.

Reform Measures undertaken in the CMP:

On 27th May, 2004, the Common Minimum Programme (CMP) of the UPA Government was announced.

Following are some of the important economic issues, included in the CMP of the Government:

(i) Economic reforms are to be undertaken with a human face, for growth, investment and employment. 

(ii) Special focus is made on the welfare of farmers, labourers, poor, minorities and marginalized people.

(iii) Pledge is made to raise public spending in education to 6 per cent of GDP and 2 to 3 per cent of GDP on health.

(iv) Pledge is made to enact a law to guarantee at least 100 days of employment to casual labourers.

(v) Gearing up of selective privatisation to the needs of common people.

(vi) Pledge is made for the repeal of POTA,

(vii) Pledge is made to ensure maintenance of robust public sector, strong private sector and for encouraging foreign direct investment to the desired level and destination for attaining targeted economic growth between 7 to 8 per cent.

(viii) Pledge to introduce major tax reform through broadening of tax base and aimed at attaining tax rate stability and promised to introduce value added tax in the reform process. Thus the CMP has rightly picked up some of the important areas in its reform process and the main areas included here are agriculture and rural development.

It is also important to notice that the CMP is fully alive to the need of sustaining GDP growth at the rate of 8 per cent per annum and also for eliminating deficit by the year 2009.

The CMP of the UPA government promises to take pro-active measures to speed up the industrialisation of the Eastern and North-Eastern States and the consideration for creation of a Backward State Fund which will be utilised to create productive assets in these states.

Committing the government to a “strong and effective public sector”, the CMP observed that “All privatizations will be considered on a transparent and consultative case-by-case basis”. Thus privatisation will be approached with a human face and the CMP has rejected the idea of automatic ‘hire and fire’ in labour policy.

The CMP has also pledged to develop capital market through prevention of manipulation by players and regulation of SEBI.

The CMP has also promised a major tax reform not through raising of the tax rate but through broadening of the tax base and aiming at tax rate stability. The UPA government is committed to eliminate revenue deficit in five years for releasing more investment resources on the one hand and reduction of fiscal deficit to 3 per cent of GDP in the time frame on the other.

There will be targeted attempt at reduction of subsidy, except for poor and truly needy people. The value added tax is also promised to be introduced in the reform process. The CMP has also mentioned some measures to increase tax-GDP ratio by expanding tax base, increasing tax compliance and by making the tax administration more efficient.

Economic Reform Measure # 2.

Financial and Banking Sector Reforms of the Government:

The UPA Government has taken ‘its decision to undertake financial and banking sector reforms that includes strengthening the PSU banks through mergers and allowing FDI up to 74 per cent in private banks. On 22nd February, 2005, the UPA Government unveiled its blueprint on banking sector reforms to enable PSU Banks to compete with the fast growing private sector banking.

Accordingly, the PSU banks have been accorded greater autonomy, allowing them to make domestic and overseas acquisitions of companies or business, closure or merger of unviable branches, opening of overseas offices, setting up subsidiaries and freedom to exit from a business on their own without seeking any approval from the government.

The Government has also given freedom to the PSU banks in deciding staffing pattern, recruitment, placement, transfer, training, promotions and pensions. Thus the government’s blueprint would enable the PSU banks to be equipped with greater operational efficiency and flexibility, thus providing a level playing field to effectively compete with private sector banks.

The present NDA government has also consolidated its attempt on banking sector reforms.

In the meantime, the RBI has also chalked out a road map for banking sector reforms and has decided to adopt a two-track approach for consolidation of domestic public sector and private sector banks and gradual enhancement of the presence of foreign hanks in the country in a synchronized manner.

Economic Reform Measure # 3.

Seven-Point Economic Agenda of UPA Government:

The UPA Government has also unveiled a seven-point economic agenda to spur investment in agriculture and rural development and also in other important areas. The seven priority areas identified by the UPA government include—education, health care, employment, agriculture, irrigation, infrastructure and urban renewal.

Economic Reform Measure # 4.

Recent Attempt for Tax Reforms: GST and DTC:

In recent years, especially since 2009-10, the UPA Government has been trying to introduce tax reforms both for direct and indirect taxes. Accordingly, the government is seriously considering to introduce Goods and Services Tax (GST) to replace most indirect taxes at the central and state levels.

Accordingly, the NDA government introduced the constitution Amendment Bill in the Lok Sabha on 19 December, 2014, but due to lack of consensus among the state governments, the final decision on GST Bill is awaited. In the budget speech (2015-16), the Finance Minister stated that the model legislation for Centre and State GST in concert with states is now under progress.

Again, in the field of direct taxes, the government wanted to bring certain reforms. Accordingly, on 12th August, 2009, the Finance Minister Mr. Pranab Mukherjee released Direct Tax Code (DTC) and discussion paper in order to bring total reform in the existing direct tax regulations by replacing 1961 Income Tax and other direct tax laws and is expected to provide a simple tax structure.

Again on August 2010, the cabinet committee clears the revised version of DTC with lot of changes in its original version and the same is rent to Parliament Standing Committee for its final report. However, the NDA Government has implemented some provisions of DTC in its 2014-15 and 2015-16 Budgets.

Economic Reform Measure # 5.

Dismantling Administered Price Mechanism (APM) on Petroleum Products:

The Government has taken steps for gradual dismantling of the Administered Price Mechanism (APM) in petroleum products and the first phase of such dismantling APM commended in April 1998. Accordingly, the cost plus formula for indigenous crude oil prices and shipping of crude oil have been with-drawn with a minimum floor price fixed as a temporary measure.

Again, in 2010-11, the government decided to dismantle the APM for determining price of petrol only along with raising the prices of diesel, kerosene, LPG and ATF marginally. At present, the prices of HSD, SKO for PDS, LPG for domestic use and ATF are still administered resulting a huge loss of revenue to the petroleum industry and a huge subsidy burden on the government to the extent of Rs 53,000 crore in 2010-11.

However, attempt is made by the government to introduce market determined pricing of petroleum products in a phased manner.

Economic Reform Measure # 6.

Fiscal Reforms:

With the enactment of Fiscal Reforms and Budget Management Act, 2003 (FRBMA), the government is trying to develop an effective institutional mechanism for regulating the system of capping of both limits of deficits and debts so that the country is not drowned under the deft trap and an effective, real and meaningful growth is assured.

With this FRBMA provision, the government has been trying to restores fiscal prudence and discipline both at the centre as well as among the state governments especially since 2007-08. The present NDA Government has also undertaken its policy of fiscal reforms since 2014-15.

Economic Reform Measure # 7.

Power Sector Reforms:

In recent years, the UPA government has been trying to implement the policy of power sector reforms in order to regain the financial strength and viability of the power sector.

Accordingly, steps are being taken for introducing organisational changes of bifurcating the state electricity boards into power generating and power distribution companies and also to fix and rationalize the power tariff by setting up of independent power tariff regulatory authorities at the state level for restoring the financial health of the power sector.

Economic Reform Measure # 8.

FDI Policy Changes 2011-12 and thereafter:

The UPA government has been trying to increase the flow foreign direct investment (FDI) into the country in recent years. With that intentions the government brought FDI policy changes, 2011 which include a number of significant policy changes, allowing FDI in Limited Liability Partnerships, simplifying and liberalizing FDI policy for inclusion of new areas or revising limit of foreign investment etc.

Moreover, the government reviewed the extent policy on FDI permitting 100 per cent for Brownfield investments (in existing companies) in the pharmaceutical sector.

Again on January 10, 2012, Government liberalised the extant policy of FDI in Single brand retail trading in which FDI up to 51 per cent was permitted subject to specified conditions of mandatory sourcing of at least 30 per cent of the value of products sold from Indian small industries/village and cottage industries, artisans and craftsmen.