India has made it a consistent priority to change its economy in order to increase manufacturing and attract investors. The most recent few months have been fraught with turbulence. The dynamics of international trade have been affected, first by trade wars and then by the COVID. Because of the one-of-a-kind nature of the current economic climate, businesses have begun revaluating their business plans, actively seeking new investment opportunities, and not being afraid to take some calculated risks.
A robust economy, unrivalled access to markets, a sizeable labour force (a demographic dividend), a government focused on reform, and an abundance of natural resources are some of India's strengths when compared to those of other countries. Foreign investors have a wide variety of opportunities to invest in these, and they have the potential to establish dynamic value chains.
Many countries' economic strategies have been reset as a result of the COVID-19 epidemic. India is going through a similar period, and foreign direct investment (FDI) will play a key part in this. Over the years, the government has taken determined steps to ensure an environment that is safe and secure. The FDI reforms have yielded positive results. India's FDI policy is facilitating and investor-friendly.
As evidenced by the fact that total FDI inflows1 increased by 55 per cent, i.e. between US$ 231.4 billion in 2008-14 and US$ 358.3 billion in 2014-20.
"Significant progress has been achieved in opening up numerous sectors of the economy; India comes out on top when compared to other emerging markets in Asia such as Indonesia, Malaysia, and the Philippines."
The following are examples of commitment to attracting FDI -
What Makes India An Attractive FDI Destination?
Consistently lowering FDI barriers and increasing attractiveness.
According to the OECD's FDI restrictiveness index, India's overall limitations on foreign direct investment (FDI) are high. They went from 0.42 to 0.21 in the span of the past 16 years, which is a significant decline. Mining, manufacturing, building, power, and services are all examples of areas where major investments have been made in India. Significant progress has been achieved in opening up numerous sectors of the economy; India comes out on top when compared to other emerging markets in Asia such as Indonesia, Malaysia, and the Philippines.
In the meanwhile, it has not yet reached the levels of foreign direct investment (FDI) openness seen in OECD countries. (The average across all OECD countries is 0.06), Vietnam (0.13), or Brazil (0.08). Given the circumstances, the government's continuous focus on foreign direct investment (FDI) and other economic reforms, such as the significant structural improvements in agriculture that began in 2020, should continue to boost India's appeal to FDI.
The overall amount of foreign direct investment (FDI) in India is expected to more than double from the USD 36 billion it was in 2013-14 to USD 74.4 billion in 2019-20 during the course of the last eight years. India has received foreign direct investment from Mauritius and Singapore.
However, in comparison to its counterparts, India may have more space to grow its foreign direct investment relative to its gross domestic product. The ratio has averaged 1.8 percent throughout the course of the previous eleven years (2009-2019). Now this is significantly lower than what other countries like Vietnam have achieved over the same period of time. During the decade of the 2000s, when China's GDP was expanding by double digits, the country's foreign direct investment to GDP ratio was roughly 4 percent. This indicates that India now has a greater capacity to entice direct investments from other countries.
Despite the impact of COVID-19, India had total equity foreign direct investment (FDI) inflows of US$ 30.1 billion in the first half of FY21. This is a 15.4 per cent increase from the US$ 26.1 billion received in the same period in FY20.
Outside of the four major states, there is a considerable opportunity that has not yet been taken advantage of. Over three quarters of the foreign direct investment (FDI) into the country came from the states of Maharashtra (28 percent), Karnataka (19 percent), Delhi (16 percent), and Gujarat (10 percent) (From October 2019 to June 2020).
The top ten states in India receive 97% of the total foreign direct investment (FDI) flowing into the country. Because the rest of India's states are larger than many other large countries across the world in terms of population and GDP, they are locations that will have opportunities in the foreseeable future.
Where Do Opportunities Exist?
Opportunities exist in industries that require a modest level of ability and a large amount of labour.
India's Services Sector and high-skill Manufacturing5 sectors—automotive manufacturing, chemical manufacturing, drug manufacturing, and pharmaceutical manufacturing—attracted 89 per cent of all foreign direct investment (FDI). It has had a limited amount of success in attracting foreign direct investment (FDI) in low-skill manufacturing sectors such as textiles and clothing, leather, footwear, and furniture in comparison to its rivals. The performance of India's exports has also reflected this trend recently. This relationship refers to a potential future strategy in which India may need to take measures to attract foreign direct investment (FDI) in low-skill labour-intensive sectors in order to join global value chains and utilise its large workforce.
India's growth story will be driven by the rising middle class and reforms under the ease of doing business.
The International Monetary Fund (IMF), in its most current World Economic Outlook, which was published in October of 2020, forecasted that India's economy will grow at an annual pace of 8.8 per cent in 2021, making it the economy with the fastest growth rate in the world. Because of the expansion of the middle class, consumer spending is expected to increase by 42 per cent between the years 2020 and 2025, as measured in terms of US dollars at constant prices, according to a projection made by IHS Markit. Because of this, India is a desirable place for FDI investments. Technology companies have already received approximately US$ 17 billion in foreign direct investment (FDI) in the first seven months of 2020, despite the pandemic. The Make in India initiative of the Indian government has increased the number of opportunities for domestic businesses to work together with foreign companies on collaborative research and development, co-production, and technology transfer projects in the defence industry.
The Pro-Active Role Of The Government -
Recent months have seen the government take a number of significant steps in the realm of defence, including:
Significant changes have been made from the DPP2016 to the new DAP2020. These changes include the addition of a new import embargo list as well as an increase in FDI through the automated approach to 74 per cent. This is done with the intention of bringing in cutting-edge technology as well as financial resources in due time for other projects. In addition to that, it will lead to an increase in the production of software as well as components and subsystems. The economic system has been severely disrupted by COVID-19, which has led to a shock similar to that which was experienced during the financial crisis of 2008-2009. During the Great Financial Crisis (GFC), the gross domestic product (GDP) of the world fell by 0.1 per cent in 2009, and it is expected that it would fall by 4.4 per cent in 2020. In 2009, negative growth rates were seen in 90 countries, or 47% of the world's total.
By the year 2020, it is expected that 168 countries, or 87 per cent, will have seen negative growth rates. During the Great Financial Crisis, both India and China continued to expand at large rates, which contributed to the overall economic recovery despite the former countries' severe economic downturns. In the year 2020, the situation will be very different as a result of the epidemic, which has had a significant impact on India, while China may only be able to continue positive development. There is a strong possibility that the pandemic shock caused by COVID-19 will be even more severe than the one caused by the global financial crisis.
The Rivalry For Foreign Direct Investment (FDI) Will Heat Up -
The shock caused by COVID-19 is expected to cause a severe impact on international trade as well as on foreign direct investment (FDI). The Russia-Ukraine war has led to spurt in commodity prices, and this is expected to slow down trade. World merchandise trade volume is expected to grow 3.0% in 2022 (down from 4.7% in 2021) and 3.4% in 2023. Both the International Monetary Fund and the United Nations Conference on Trade and Development (UNCTAD) anticipate that there will be a significant decrease in foreign direct investment (FDI) in the future as a large number of industrialised countries reshore their vital commodity value chains in order to develop resilience against global shocks such as pandemics. FDI flows plunged globally by 35% in 2020, to $1 trillion from $1.5 trillion in 2019.
Lockdowns caused by the COVID-19 pandemic around the world slowed down existing investment projects, and the prospects of a recession led multinational enterprises (MNEs) to reassess new projects. The fall was heavily skewed towards developed economies, where FDI fell by 58%, in part due to corporate restructuring and intrafirm financial flows. FDI in developing economies was relatively resilient, declining by 8%, mainly because of robust flows in Asia. According to the data provided by the IMF, the ratio of global FDI inflows to GDP has been on a downward trend ever since the global financial crisis, falling from between 3 and 5 per cent to between 2 and 3 per cent. Because of the pandemic, this ratio is expected to decrease even further in the years to come, eventually landing somewhere in the range of 0.9 per cent to 1.4 per cent. All of these pieces of data point to the fact that the total amount of global FDI being invested will continue to fall in the years to come.
At the same time, there may be an increase in the demand for foreign direct investment (FDI) around the world, particularly from developing countries, in order to help fund their investment needs. As a direct consequence of this, the competition for foreign direct investment (FDI) that exists between various regions may grow even fiercer.
The practice of transferring production back to the country or region from where it was originally exported, sometimes known as "reshoring," is also known. The disinvestment of current value chains and the reduction of efficiency-seeking foreign direct investment will both work to facilitate the process of reshoring.
Companies in which new technologies are displacing older technologies and global value chains for such technologies have not yet been established may use this strategy. Electric automobiles and other sophisticated machinery could be produced in India with the help of this technology. COVID-19 placed an attention on the problems associated with global value chains by stressing the ways in which their geographical spread, complexity, and distance constituted substantial obstacles to the value chain restarts that were necessary during the pandemic.
More regionalization of some global value chains will be supported by the current policy climate, which includes regional economic cooperation, post-pandemic regional self-sufficiency, increase of industrial capacity, and protection. It is possible that India will be forced to go this route in the case of cotton textiles, mining, and other industries where it could be possible to construct a regional value chain. When a company has both diversification and redundancy, it means that it will leverage many of the current suppliers in global value chains, which can be found in a variety of locations.
In the future, diversification will be of assistance to businesses in their efforts to respond to pandemic-like situations. As industrialised countries continue to diversify their economies, this will present India with an opportunity to advance its low-skill manufacturing sector. In addition, India's service industry has been at the forefront of global competition for a significant amount of time, and the country will need to continue to excel in this area in the years to come.
The primary objective is to achieve as much redundancy as is humanly possible. This will ensure that several businesses inside a country are able to create the necessary commodities, which will in turn disrupt any current value chains and concentrate production within a country or sub-region. In order to increase its chances for foreign direct investment (FDI) in the wake of COVID-19, India has already started to implement this strategy in the crucial medicines and medical devices sectors. The primary factors that encourage foreign direct investment include corporate tax cuts, initiatives to make it easier for businesses to operate, simplified labour laws, and FDI reforms. According to almost forty per cent of investors, the steps taken by the government to decrease corporate tax rates, streamline labour standards, and improve the ease of doing business have been essential in attracting international investment into the country. FDI reforms and the government's emphasis on people's access to healthcare and training have proven profitable for thirty per cent of the businesses surveyed.
The Primary Approaches India Has Taken In Order To Attract FDI -
In order to position India as a top destination for international investment, the government has carried out a series of structural reforms, with a particular emphasis on land, labour, liquidity, and the law. Since the beginning of the pandemic, it has provided around 20 million crores of rupees worth of stimulation to the economy. Among the industries that are addressed are those pertaining to power, manufacturing, defence, land, education, mining, and minerals.
The following is a list of some of the major enhancements that have been implemented:
- A 15 per cent corporation tax rate for new industrial facilities, which will make it more competitive with countries in the ASEAN region
- Abolition of the tax on the distribution of dividends from corporations
- A structure of duties that is both progressive and graded to stimulate domestic production of intermediate and final goods, such as electric automobiles
- Production-linked incentives of 197 billion rupees, distributed across 13 industries
The government offered monetary incentives on top of incremental sales for a period of five years to counteract the effects of disability manufacturing in India. The first emphasis was placed on high-value items (cell phones, for example) and commodities associated with healthcare. The maximum on automatic route foreign direct investment for the manufacturing of defence goods has been raised from 49 per cent to 74 per cent. To support the growth of micro, small, and medium-sized enterprises (MSMEs), the definition of MSMEs has been expanded to include higher investment and turnover levels.
- The consolidation of more than one hundred different labour regulations into four different codes, with more retrenchment exemptions and decreased registration requirements In order to provide information on industrial land, a GIS system has had its implementation expanded to allow the gathering of data at the plot level.
- Making it easier to conduct business by implementing paperless e-assessments for taxation, legitimising company legislation, and providing the option to net eligible Financial Contracts
- The beginning of coal mining for commercial purposes, as well as the establishment of an integrated licencing system for mineral mining
- The Airport Authority of India (AAI) has chosen to award three of the six proposals it received for the operation and maintenance of airports on a public-private partnership (PPP) basis
The electricity departments and utility companies of the Union Territories are going to be privatised. Distribution's operational and financial efficiency will both grow as a result of this, and it will also serve as a model for other utilities all throughout the country to emulate. New Public Sector and Firms Policy, often known as the "New Public Sector and Firms Policy," is a policy that allows public sector enterprises to participate in some areas while also opening all markets to the private sector. During the COVID recovery period, the "Atmanirbhar Bharat Rozgar Yojana" programme was initiated in order to foster the establishment of new job opportunities. Reforms in areas such as corporate tax reduction, labour reforms, agriculture reforms, PLI & PMP reforms, MSME reforms, coal and mining changes, and other reforms had been sought after for a significant amount of time by industry as well as multilateral organisations. These reforms will assist in not only increasing the production capacity of the economy but also in making the economy more efficient in its use of the resources that are currently available. A fresh concentration on the nation's infrastructure is required in order to entice financial investments. In order to increase the amount of foreign direct investment (FDI), the companies that were questioned believe that the government should address the following primary focus areas. The construction of new logistical infrastructure, as well as the expansion of port capacity, is something that 17% of companies believe should be the primary priority in order to cut down on the prices of moving goods and the amount of time it takes, respectively. The development of a customs clearance system of world-class calibre earned 13% of the vote. Even if the clearance process has seen significant development in recent years, a system that enables simultaneous approvals from several departments rather than sequential clearances would make it a great deal simpler for businesses to acquire clearances in a timely manner.
In addition to this, the findings of the study suggest that there is a need for further attention to be paid to the successful implementation of new labour laws, the availability of labour, research and development reforms, tax reforms, and the raw material supply system. If attention was paid to the aforementioned topics collectively, it would be possible to alleviate the concerns of almost 65 per cent of respondents, which would ultimately result in a more positive experience for foreign investors in the country.
26 per cent of businesses believe that the turnaround time for value added production for regional or global supply chains is critical in terms of trade policy, while 24 per cent believe that cargo handling facilities at ports, airports, and land customs stations need to be improved. Both of these beliefs are related to the concept of free trade. A almost equivalent proportion of companies place a high importance on trade facilitation measures. The bulk of respondents' concerns are addressed by these three primary categories, in addition to the associated costs financially (72 per cent).
"The construction of new logistical infrastructure, as well as the expansion of port capacity, is something that 17% of companies believe should be the primary priority in order to cut down on the prices of moving goods and the amount of time it takes, respectively. The development of a customs clearance system of world-class calibre earned 13% of the vote."
What Kind Of Things Are The Competing Nations Trying To Entice Potential Investors?
The consequences of the pandemic's economic impact will continue to reverberate across the economy of the entire world for the foreseeable future. The outbreak has demonstrated the difficulties associated with relying on a single nation to fulfil the requirements of the global economy's industrial sector. A good number of industrialised nations are currently engaged in a mad dash to diversify their supply chains, reduce their reliance on the products of a single nation, and build redundancy into their manufacturing value chains for the foreseeable future.
Competitors like China had an advantage in manufacturing but not in services; Vietnam, Indonesia, and Bangladesh had advantages in low-skill manufacturing and textiles. Historically, India's comparative advantage has been in services and high-skill manufacturing. China, on the other hand, had an advantage in manufacturing but not in services.
In the realm of manufacturing, industrialised countries are mulling over the possibility of adopting a China+1 strategy, in which the new investment destination is chosen based on a number of the variables that have been discussed previously.
In the same way that India is taking advantage of this window of opportunity to entice investment; a number of other developing nations are making comparable efforts. As was said before, India has carried out a number of ground-breaking structural reforms in recent years in an effort to increase the allure of the nation for foreign nations.
Vietnam, Thailand, Indonesia, and Bangladesh (for Textiles) have focused on policy options such as investment subsidies (in the form of taxation), attracting Outward Direct Investments (ODI) from China, establishing Free Trade Agreements (FTAs) and Investment agreements with key supplier and importer countries, instituting structural labour reforms (in Indonesia), and instituting ease of doing business reforms comparable to what India has done. They have relatively inexpensive labour in comparison to China, which is rapidly expanding into the higher complexity regions of global value chains. This is because China is developing at a far faster rate than these other countries.
The Advantages That India Enjoys Due To The Following Factors -
India's gross domestic product (GDP) in 2019 was $2.9 trillion, while the GDP of its competitors—Malaysia, Indonesia, Thailand, Bangladesh, and Vietnam—was $2.6 trillion, which is 10 per cent lower than India's GDP. This highlights the unparalleled access to the market that investors will have if they choose to make their investments in India.
- India has a labour force that is 320.6 million people, which is 36 per cent smaller than the total labour force of Malaysia, Indonesia, Thailand, Bangladesh, and Vietnam. India's labour force is 500.9 million people. Even after 2050, India will continue to enjoy the benefits of its demographic dividend, presenting investors with a long-term opportunity in which they do not need to be concerned about rising wage limitations.
- As a direct result of all of the reforms that have been carried out by the administration up until this point, India now scores higher in terms of main investor attractiveness measures.
- Finally, in contrast to other rising countries that are still developing their economies, India has a significant industrial footprint throughout all value chains. As an illustration, from the cultivation of cotton to the manufacturing of garments; from the extraction of coal and iron ore to the production of automobiles and other metal objects; and so on.
Foreign investors would have a wide variety of investment opportunities available to them, and they would be able to create flourishing value chains with their very own backward and forward links within the borders of India alone.
How much direct investment from other countries can India bring in?
The expansion of a nation's gross domestic product is connected to the inflow of foreign direct investment. The gross domestic product (GDP) of China expanded by an average of 10 per cent in the year 2000, while the ratio of foreign direct investment to GDP was 4 per cent. The Foreign Direct Investment to Gross Domestic Product Ratio Has Fallen to 2% However, because China's growth rate has slowed to 6% over the past decade, this ratio has fallen. In addition to having a high Foreign Direct Investment to GDP ratio of approximately 6 per cent, Vietnam's GDP has been growing at an average rate of 6.2 per cent.
The growth in India's GDP over the past decade was 6.8 per cent, and foreign direct investment made up 1.8 per cent of India's GDP. Recent structural changes, increasing FDI limitations in several industries, and the policy of the government known as Atmanirbhar Bharat are all contributing factors that are expected to cause the ratio of FDI to GDP to skyrocket by the year 2025. It is estimated that India will be able to attract between USD 120 billion and USD 160 billion in FDI yearly if it is successful in increasing the ratio of FDI to GDP11 to between 3 per cent and 4 per cent by the year 2025. It is possible that this will assist India's gross domestic product growth rate in returning to the 7–8 per cent range.
What Kind of Policies Should the Indian Government Pursue?
The government's concentrated reforms to boost India's global competitiveness will begin to show obvious results as investors begin to take advantage of this opportunity to expand their businesses in India. The current form of the economy's transformations needs to be maintained. The amount of foreign direct investment (FDI) that India receives should be increased to a target of 4 per cent of GDP, up from the current level of 1.8 per cent of GDP (which has been achieved in recent years).
In the same line, we have determined a few additional domains on which the government ought to concentrate its efforts in the not too distant future. Establishing Coastal Economic Zones (CEZs / SEZs) and manufacturing clusters is something that needs to be done. According to a study12 conducted by the World Bank, the increase of GDP in the SEZs that were investigated was 14.7%, which is significantly higher than the average growth rate of 3.144% seen across the entire world.
The government's Baba Kalyani Committee, which was established to study the country's Special Economic Zone (SEZ) strategy, made a large number of recommendations on several aspects of the SEZ policy. These recommendations included WTO compliance, increased manufacturing from SEZs, international comparison, and other government policies. These proposals are currently in the process of being implemented by the government.
In the future, India ought to concentrate on developing CEZs with infrastructure of world-class standard and the full supply chain present in the zones. This would cut down on transit times and make the entire chain competitive while requiring a minimal amount of compliance on their part. It is strongly suggested that:
- The government should create four to five large coastal economic zones and equip them with suitable infrastructure for logistics. At least one of them has the potential to become a component of the industrial corridor that runs between Delhi and Mumbai
- CEZs should place more of an emphasis on the competitiveness of their manufacturing sectors rather than catering solely to exporters
- Enclaves should be able to do business with regions that are located outside the zone, and domestic supply and payments should be able to take place in rupees. Additionally, incentive linkages with exports should be severed, and the need for NFE should be eliminated
- Make it possible for CEZ investments to receive External Commercial Borrowings (ECBs) in order to make access to funding easier
- The government could provide indirect benefits to industries located in such zones by investing in shared infrastructure and implementing programmes like PMAY and Ayushman Bharat to provide low-cost housing and healthcare for workers. These programmes are designed to benefit workers in the manufacturing sector
- Because the nation's infrastructure is considered a public good, it is essential that the government continue to invest in its maintenance and repair in all of the country's many regions. The effectiveness of customs and port clearances is another area that has to be reformed. The duration of the time required to clear incoming and leaving cargo can be greatly reduced down by the implementation of cutting-edge technology and the streamlining of processes.
Increase the country's already favourable business climate even further. India's position in the World Bank's rankings of countries according to their "ease of doing business" (EODB) has improved from 142nd to 63rd place as a direct result of the government's unrelenting efforts to improve EODB. The score that India received for certain categories, including the enforcement of contracts, the beginning of a business, the registration of a property, and the payment of taxes, is still quite low.
The following are some potential areas that should be taken into consideration by the government:
Contract enforcement - Despite having one of the greatest economies in the world, India is ranked 163rd in terms of its ability to uphold contractual obligations. Investors want to know they may have faith in the project and that it will be implemented quickly; hence, delayed contract enforcement hinders investment. According to the Economic Survey of 2018, it is anticipated that the value of the projects that have been put on hold in six infrastructure ministries will be close to Rs 52,000 crores. It will be necessary for the government to engage the judicial system in a proactive manner and increase the rate of case clearing to one hundred per cent if it is to succeed in reducing the pendency and the accumulation of pending cases. It is essential to increase the number of judges while simultaneously increasing their productivity through the use of new procedures and technological advances. The multiplier effect of investments in the judiciary is highlighted in the government's economic assessment for the 2018-2019 fiscal year.
This effect is highlighted not only in terms of the economic benefits, but also in terms of the enhanced culture that can be attributed to the enforcement of rule of law. Decriminalization of economic law is one of the recommendations made by the Indian government for the amendment of 19 legislation in June of 2020. Furthermore, there has been a consistent demand, and multinational corporations (MNCs) in India have made several submissions, such as the decriminalisation of legal metrology law. This is one example. This procedure needs to be done out with a lot of attention to detail. It has been proposed that the government of India examine all laws pertaining to economics and reconsider the transgressions that warrant the imposition of criminal sanctions.
Make necessary changes in the way the financial sector operates -
Along with the implementation of the Atmanirbhar Bharat plan, the banking system in India need immediate reform. The following are some potential considerations that the government might give some thought to:
Improve the effectiveness of the Indian banking industry by restructuring and recapitalizing public sector banks and reducing the gap between deposit and lending rates This should help in the transmission of monetary policy as well as the absorption of loans, which should in turn kickstart the investment cycle in the economy. In accordance with the suggestions made by the RBI Task Force13, a centralised Public Credit Registry (PCR) should be established at the national level. This would result in better symmetry of data and improved efficiencies in comparison to the current systems, which have credit information distributed throughout the whole financial industry.
Initiatives pertaining to taxes -
Tax advantages to stimulate research and development and innovative thinking.
Research and development (R&D) should continue to receive support from India in the form of weighted deductions and tax incentives. The promotion of private sector investment in research and development (R&D) occupies a prominent position on the innovation policy agendas of many nations.
According to the OECD14, during the course of time, the policy mix has altered, with a larger focus being placed on the use of R&D tax incentives to stimulate business R and D.
As many nations prepare strategies to revive their economies in the wake of COVID-19, they are establishing new, expanded, or specially-focused research and development (R&D) incentive programmes. However, these initiatives are being hampered by BEPS regulations, which prevent them from being fully implemented. In order to stimulate more firm investment, a number of nations have reinforced their capital and other incentives and allowances, as well as their depreciation and amortisation policies. As an example15, countries like as Finland, Germany, Indonesia, Japan, Korea, Malaysia, New Zealand, Poland, Slovakia, Switzerland, and the United Kingdom are reducing the tax burden imposed on firms while simultaneously boosting or enhancing R&D and other business incentives.
Clarity on taxation -
The courageous initiative taken by the government to cut corporation tax rates to 22 percent for all enterprises and 15 per cent for new manufacturing companies propelled India into a competitive position against a large number of OECD and BRICS countries, in addition to regional competitors such as China, Indonesia, and the Philippines. Reduced interest rates will, over the medium term, bring down the cost of capital and drive further investment. In addition to the items listed above, a positive step forward would be to place an emphasis on honest taxpayers and transparent tax administration. E-assessment Scheme (FAS), Faceless Appeals, and the Taxpayers' Charter are all game-changing reforms that will increase the effectiveness, transparency, and accountability of the tax administration. Increasing legal certainty and building processes for preventing and resolving disputes are the two primary responsibilities that the government must focus on at this time. The Authority for Advance Rulings (AAR) process in India has had only modest effectiveness in reducing the amount of litigation; currently, there are over 470 cases that need to be resolved. This is because of the structural and administrative variables involved. Even if the functioning of the benches has significantly improved, there is still more work to be done to ensure that the procedure is successful.
It has been demonstrated that Advance Pricing Agreements (APA) are effective in minimising the number of litigation. In spite of the difficulty of the procedure, the Department of Defence has already signed 320 APAs (as of the 20th of December in 2019)16. However, there are still over 760 cases that need to be resolved before they can be closed. Both the AARs and the APAs can significantly improve their capacity, which will be very beneficial to the taxpayers. Making it possible for APAs to conduct e-site visits can help the process move along more quickly. In addition, the government ought to continue its initiative of issuing clarifications in response to the inquiries made by taxpayers regarding the nature of certain policies. New approaches, such as private rulings and tax mediation, might be looked into as potential ways to cut down on conflicts.
Quicker action is needed to reform the power sector -
The industry is still being negatively impacted by high electricity costs, and the high amount of nonperforming assets in the power sector has had a negative impact on the banking sector. To boost India's manufacturing competitiveness, strengthen government finances, and make the Indian power sector attractive for foreign and private investments, the government should prioritise finishing the proposed reforms to the power sector by passing the new Electricity (Amendment) Bill, 2020, implementing the new Tariff policy, and encouraging the franchisee model or privatisation of distribution companies. Doing so will help make the power sector in India more appealing to both foreign and domestic investors.