RATIONALISATION OF KEY POLICIES:”Set up of Tax Administration Reform Commission to review the application oftax policies and tax laws and submit periodic reports to strengthen the capacityof tax system”.• Proposal to set up India’s first Women’s Bank as a public sector bank with aprovision of Rupees 1,000 Crores as initial capital.• Introduction of Commodities Transaction Tax on non-agriculturalcommodities futures contracts at the same rate as on equity futures (0.
01% ofthe price of the trade).• The present criteria for determining backwardness are based on terrain, densityof population and length of international borders. Proposal to use measure likethe distance of the State from the national average under criteria such as percapita income, literacy and other human development indicators.• Voluntary Compliance Encouragement Scheme launched for recoveringservice tax dues.
REFORMS REGARDING INDIRECT TAXES:• Headline rates for Customs, Excise and Service Tax unchanged • CST rate remained unchanged at 2%• Goods & Services Tax (GST) introduction was reiterated. Theagreement between Centre and States to compensate for loss of CST,implemented with first instalment of revenue compensation of Rupees9,000 Crores allocated to the States Legislative changes primarilyaimed at augmenting penal provisions and introducing additionalprovisions for recovery of unpaid/ disputed liabilities. KEY INITIATIVES:National Food Security Bill referred to Parliamentary StandingCommittee. Post wide-ranging consultations, the Committeesubmitted its report to the Speaker, Lok Sabha on 17 January 2013pending concerned Ministries / departments consultation prior toenactment• FDI Policy progressively liberalised to include FDI in multi-brandretail trading up to 51% subject to specified conditions• Effective January 2013, introduction of Direct Benefit TransferScheme ensured the benefits were directly transferred into thebeneficiaries? bank accounts in 43 identified districts acrossrespective states and union territories.WHY THESE ECONOMIC REFORMS FAILED:”Growth was 4-5%, half the level at the peak, inflation was 9% and rising,industrial production declined and the public finances were a mess.Although the current-account deficit was narrowed to below 2% of GDP,it flattered by a de facto ban on gold imports and blew out of proportions.
“A decade ago the country seemed destined to rival China. Annual growthwas heading towards 10%. India had the ingredients that had made EastAsian countries richer: a growing population and rates of saving andinvestment of over 30% of GDP that would finance factories and roads,lifting the economy’s potential. Unlike most East Asian counties, Indianever had a strong state, but instead, optimists argued, it had brilliantentrepreneurs who could wheel and deal the country to prosperity.What went wrong? The raw inputs of growth—people and capital—weredeployed badly.
The rates of savings and investment dipped and their mixdeteriorated. High inflation led households to buy gold, shifting moneyaway from the banking system where it can be productively employed.And a mixture of bureaucracy, excessive leverage, incompetence andcorruption led private companies (whose spending tends to have the mostbang per rupee) to halve their investments as a share of GDP.India’s improvised miracle hit its limits at that time. Although poverty hadfallen, much of the economy was primitive.
Infrastructure decades behindChina’s. Industries that were close to the state got involved in corruptionon a grand scale, with bribes paid to politicians and officials over the pasthalf-decade of anywhere between $4 billion and $12 billion. Only 3% ofIndians paid income tax, leaving a hole in government finances.”About 90% of jobs were informal, leading to widespread poverty.Agriculture, feudal and food shortages caused inflation. India was meantto be industrialising but manufacturing contributes only 15% of GDP and11% of jobs, and its share had been falling.
” A majority of India’s 50million manufacturing workers toiled in facilities without electricity. Atmarket exchange rates India’s GDP at that time remained smaller thanItaly’s and ranked tenth in the world, about the same as in the 1980s.