Which Reforms Can Improve Economic Growth

Reforms can be referred to as any improvements made in a system to fill an existing gap in it or enhance it by issuing policies. Several reforms have been implemented in India throughout time. The primary reason behind it was to grow the economy of the nation. It is vital to establish the factors leading to economic growth and development. The Indian market has reportedly witnessed an average of 7.02% decline in the GDP in the last five years, mainly due to scarcity of resources and inefficient management of old reforms leading to exploitation. However, the concept is broad. Let’s dive directly into the details.

Structural Reforms: tax cuts, fiscal reforms and market reforms

India comprises a majority of the under-employed labour class. The malfunctioning of the economic reforms and inequalities in the distribution of income and payroll has deeply affected the country’s economic growth.

To cater to the issue, Smt. Nirmala Sitharaman, our honourable Finance Minister, allocated Rs. 20 lakh crores to boost the structural reforms. The main aim of these funds was to make structural reforms simpler for the labour class to understand and follow them. Strict guidelines on the Basic Payroll or BPL (Below Poverty Line) were set for sectors like Coal and Power generation to decrease the exploitation of labourers. The announcement also suggested amendments in the Industrial Disputes Act, 1947, giving the State and Central governments the power to set reforms and make necessary amends if required.

The growth cycle in reforms is a combination of Investments, Reform policies and Corporate Governance or Responsibility.

Reforms that can successfully lead to market and economic growth are:

1. Fiscal Reforms
2. Tax Cuts
3. Market Reforms

Fiscal Reforms

Fiscal reforms closely deal with fiscal policies centring around government expenditures, loans, taxation and its role in economic development and employment. When we talk about the labour market, we need to understand how tax policies and burdens affect the labour market. The federal system of India works upon the tax collected (income tax, payroll tax, etc.) by individuals and companies. However, it does prove to be a burden at times for which certain reforms need to be established. 

Tax Cuts

Tax Cut, in simple words, means reducing the tax burden by the government by lowering the rates and creating more exemptions under the IT Act. Further analysis reveals that economic growth is ignorant of how much tax a wealthy businessman or big companies pay. However, it is highly affected by the tax paid by the middle-class people engaged in the employment sector, as their growth proportionately leads to an increase in GDP and a decrease in unemployment and poverty rates. Tax cuts can generate employment in case of voluntary unemployment cases.

Tax Cuts can be made by:

• Income Tax Cuts: The income tax paid on the wages by the taxpayers should have sufficient exemptions catering to their expense rate and leaving behind a decent amount for savings and investment. 

• Payroll Tax Cuts: The payroll given to labourers per day or as per the Labourers Contract must ensure amenities like medical, educational, housing, healthcare, and sanitation facilities. The tax cuts should be made to reduce the financial burden upon them.
• Small Business Tax Cuts: The tax rates imposed on small businesses and startups should be reduced to promote and motivate them to invest and start their ventures to make an earning out of it.

Market Reforms

Economists have analysed that fiscal deficit is not the only cause of declining economic growth, but inefficient and timely market reforms also directly affect development. To boost the market, liberalisation needs to be practised. The Indian market is determined by the inelastic and elastic demand and supply cycle, which is highly dependent on market sentiments.

A popular reform was the Goods and Services Tax (GST), which eliminated multiple tax burdens to make the payment simpler and more accessible for individuals and corporate sectors.

The government recently made reforms in the telecom industry, which was on the verge of collapsing, to reduce its burden and boost its growth. The Indian government also took the help of SEBI (Securities Exchange Board of India), which issued specific guidelines on IPO, Lock-In periods, Investment cycle, Demat verifications, and so on to protect the interests of its investors. They were issued to check the market flow of liquid cash and credit policies offered to companies and individuals.

However, it becomes difficult to decide the amount of money that can be left in the hands of the people. This dilemma persists because leaving more money to be spent by the people can only lead to a rise in inflation followed by a sudden boom and equally sudden downfall in the Indian market.

Conclusion

To conclude, economic reforms can be termed as the reforms implemented to enhance the country’s economy. Moreover, three reforms, namely, tax cuts and fiscal and market reforms, helped pull up a staggering Indian economy. The government levied fewer taxes and altered fiscal and market policies in these.