Major Indian Economic Reforms and Policies Affecting Business Environment

Economic reforms in India regulate industrial licensing, taxation, corporate governance, foreign investment, and dispute settlement. These policy measures replaced direct state controls with market mechanisms, simplified corporate entry and exit, introduced digital compliance workflows, and replaced criminal penalties for minor procedural defaults with civil monetary fines.

Landmark Industrial and Foreign Trade Deregulation

Dismantling of Industrial Licensing (1991)

• The New Industrial Policy of July 24, 1991, abolished compulsory industrial licensing for all sectors except a small list tied to defense, hazardous chemicals, and public safety.
• The policy removed pre-entry clearance rules for industrial capacity expansions, plant modernizations, and foreign technology collaborations.
• Public sector reservation fell from seventeen industries to eight, and later narrowed to atomic energy and core railway transport operations.
• The Phased Manufacturing Programme, which mandated local component sourcing, was discontinued.

Foreign Investment and Exchange Management Reforms

• The 1991 policy introduced an automatic route for Foreign Direct Investment (FDI) up to 51 percent equity in 34 priority industrial categories.
• The Foreign Investment Promotion Board (FIPB) handled discretionary foreign investment proposals until the Union Cabinet dissolved the body in May 2017.
• Parliament enacted the Foreign Exchange Management Act (FEMA), 1999, which replaced the penal Foreign Exchange Regulation Act (FERA), 1973, shifting foreign exchange violations from criminal offenses to civil liabilities.

Transition from Monopolies Control to Competition Regulation

• Amendments to the Monopolies and Restrictive Trade Practices (MRTP) Act, 1969, in 1991 eliminated pre-entry asset threshold scrutiny for dominant business houses.
• Parliament enacted the Competition Act, 2002, to repeal the MRTP Act, leading to the creation of the Competition Commission of India (CCI) in October 2003.
• The CCI prevents anti-competitive agreements, checks abuses of dominant market position, and reviews domestic and cross-border corporate combinations.

Structural Taxation and Corporate Law Modernization

Goods and Services Tax (GST)

• The Constitution (101st Amendment) Act, 2016, enabled the rollout of the Goods and Services Tax on July 1, 2017.
• GST merged seventeen central and state taxes, including Central Excise Duty, Service Tax, State Value Added Tax (VAT), Entry Tax, and Luxury Tax.
• Article 279A created the GST Council, a constitutional body chaired by the Union Finance Minister with State Finance Ministers as members to decide tax rates, exemptions, and procedural rules.

Direct Corporate Tax Rationalization

• The Taxation Laws (Amendment) Act, 2019, reduced the base corporate income tax rate under Section 115BAA from 30 percent to 22 percent for domestic firms that forego specific deductions.
• Section 115BAB set a concessional 15 percent base corporate tax rate for newly incorporated domestic manufacturing enterprises.
• The Union Budget removed the Dividend Distribution Tax (DDT) at the company level, shifting tax obligations on dividend income directly to recipient shareholders.

Corporate Compliance and Decriminalization

• The Companies Act, 2013, replaced the Companies Act, 1956, introducing One Person Companies (OPC), the National Company Law Tribunal (NCLT) system, and independent director rules.
• Section 135 made Corporate Social Responsibility (CSR) mandatory for companies meeting specified net worth, turnover, or net profit thresholds.
• The Companies (Amendment) Acts of 2019 and 2020 decriminalized dozens of technical and compoundable offenses, shifting adjudication from criminal courts to an in-house electronic penalty system.

Insolvency Resolution, Exit Frameworks, and Commercial Courts

Insolvency and Bankruptcy Code (IBC), 2016

• The IBC consolidated fragmented insolvency statutes, replacing the Sick Industrial Companies Act (SICA), 1985, and provincial insolvency laws.
• It introduced a creditor-in-control framework where an appointed Insolvency Resolution Professional (IRP) runs operations under the direction of the Committee of Creditors (CoC).
• The Corporate Insolvency Resolution Process (CIRP) must conclude within 180 days, extendable to a maximum of 330 days including legal review time.
• Section 29A disqualifies willful defaulters, non-performing asset account holders over one year, and barred promoters from bidding for stressed corporate assets.

Commercial Dispute Resolution Platforms

Compliance Rationalization and Business Facilitation

Jan Vishwas Legislative Reforms

• The Jan Vishwas (Amendment of Provisions) Act, 2023, decriminalized 183 provisions across 42 central statutes administered by 19 ministries.
• The legislation replaced prison terms for minor clerical and technical errors with administrative civil penalties.
• It introduced formal Adjudicating Officers and appellate mechanisms within executive departments to keep minor non-compliances out of criminal courts.
• The law mandates a 10 percent increase in minimum monetary penalties every three years to reflect economic changes.

Digital Single Window and Industrial Infrastructure

• The National Single Window System (NSWS) serves as an integrated digital portal providing single-point business approvals across central ministries and state departments.
• The SPICe+ (Simplified Proforma for Incorporating Company Electronically Plus) portal integrates ten separate services, including company name reservation, incorporation, PAN, TAN, EPFO, ESIC, and bank account opening into one form.
• The Business Reform Action Plan (BRAP), managed by the Department for Promotion of Industry and Internal Trade (DPIIT), ranks states and union territories based on ease-of-doing-business benchmarks.
• The PM GatiShakti National Master Plan coordinates multi-modal infrastructure projects across ministries using an integrated GIS map database.

Comparative Summary of Structural Economic Reforms

Facts

• The New Industrial Policy was announced on July 24, 1991, under Prime Minister P.V. Narasimha Rao and Finance Minister Dr. Manmohan Singh.
• The Foreign Investment Promotion Board was abolished on May 24, 2017, moving standard foreign investment clearances to sectoral administrative ministries.
• The Insolvency and Bankruptcy Board of India was established on October 1, 2016, with headquarters in New Delhi.
• The minimum default threshold to trigger insolvency resolution under the IBC was increased from one lakh rupees to one crore rupees in 2020.
• Section 246A of the Indian Constitution gives Parliament and state legislatures concurrent powers to make laws on the Goods and Services Tax.
• Section 135 of the Companies Act, 2013, requires companies with a net worth of 500 crore rupees, turnover of 1,000 crore rupees, or net profit of 5 crore rupees to spend 2 percent of average net profits on CSR.
• The SPICe+ form is an integrated web service developed by the Ministry of Corporate Affairs for end-to-end company incorporation.
• The Jan Vishwas Act of 2023 amended 42 central laws, including the Indian Forest Act, 1927, the Patents Act, 1970, and the Information Technology Act, 2000.
• The Commercial Courts Act, 2015, established specialized commercial courts for disputes with a minimum specified value of three lakh rupees.
• The Competition Commission of India consists of a Chairperson and up to six members appointed by the Central Government.
• The DPIIT introduced the Business Reform Action Plan in 2014 to promote competitive federalism among Indian states.