2017: The biggest reform year since 1991?

2017 has been an interesting action filled year from the perspective of economic policy and governance. I would venture out to say that the year would go down in history as one of the most important in our nation's development timeline, and perhaps nearly (or more??) as significant as 1991.

The reasons are not far to see. The year saw many reforms, big and small (it is the small ones that really add up too - as manifested in the Ease of Doing Business ranking improvement). I am listing out the headline-reforms that will place 2017 in a special category:

1) GST - While the initial teething troubles led to lot of anxiety over GST, Govt and the opposition set a fantastic example of cooperative federalism in passing GST. GST will over course of time, fundamentally change the way business is done in India. GST will remove inefficiencies that existed due to uneven taxation and will boost domestic manufacturing and trade. If there is one single measure that helps Make in India, it is GST. GST will also enhance overall transparency leading to varied benefits. Regular GST returns would give MSMEs equal opportunity and credibility and allow banks and institutions to lend confidently to this sector.  Among many things about GST, what stands out for me is that - GST is a long-overdue "credit" to those who want to do business transparently over who hide.

2) Bankruptcy code and bank capitalization:

The bankruptcy code was a long due reform and it establishes the fair rights of creditors who had hitherto been hostage to defaulting promoters. This reform indeed lays down a pathway to resolve current bad debts. But even more so, the IBC will help clamp down on loan indiscipline between banks and promoters for future. A lot hinges on the resolution of the first batch of 12 insolvency cases. Not all resolutions will be optimal, but the learning from the cases will progressively help improve the process. In this sense, this is reform as much to set processes and institutions for future as it is to resolve the (huge) problem that was inherited.

Bank capitalization that was announced recently should also give strength to PSU banks in short-medium term in cleaning up on past and being able to finance the future. 

Staying on bank reform, especially from a long-term perspective, the proposed FRDI bill, is a step in the right direction. Essentially, it accepts that banks can fail (even if we must do 'almost everything' to avoid it) - and hence a structured process should be in place to deal with such potential crises. Govt needs to be complimented for having the courage to initiate this.

3) Essential Infrastructure push:

Technically not a 'reform' measure, but the emphasis on roads, electricity, housing, ports and railways is most welcome and highly significant. The execution orientation adopted by Govt in last 3 years has given confidence that development targets will be reached. The progress made in cleanliness (Swachh Bharat), electrification (Saubhagya), building roads (Bharatmala) and affordable homes is case in point.

4) Aadhaar & Digitisation: Even as demonetisation was largely analysed (positively or negatively) by most commentators on political lines, there is no doubting that it helped push the digital agenda forward. Banks were flushed with liquidity and the huge inflows into Mutual Fundss can at least be partly attributed to formalization of cash into mainstream.

More importantly, the Govt has continued to pursue digitization of various services and pushed Aadhaar forward. These 'reforms' are very long term in nature as they set the foundation for India as one of the most open, transparent and digitized economy in the world. Aadhaar not only provides identity, but brings huge sections of population into a visible mainstream allowing for better and efficient targeting of not only subsidies but also goods and services. In some sense, Aadhaar will harness the power of India's demographic dividend even as GST unlocks the manufacturing potential.

These reforms give me confidence that India is on track to achieve 7-9% GDP growth next over 5-7 years. The stock markets and the surge in Rupee also seem to share this view. Hopefully 2018 and the future will testify favourably to the collective vote of confidence. If so, 2017 will have its 'name' firmly etched in annals of India's economic history.