Economic Landscape In Modi 3.0: Reforms Push, Liberalisation To Continue

India’s general election is now behind us—a spectacle that investors across the globe would have kept a keen eye on over the past few weeks. Typically, coalition governments are not viewed very favourably from an economic growth perspective, given that they find it increasingly tough to pass any truly game-changing legislation. However, the sentiment appears to be different this time, with the correction in the markets expected to gradually even out over time.

India is witnessing a pivotal moment in its growth story where strong fundamentals such as a demographic advantage, rapid technological adoption, growing financial literacy, and steady domestic demand are all keeping the arrows pointed upward. As the Indian economy grows, so do the myriad opportunities for businesses, entrepreneurs, and investors to chart the next course of growth.

The overall direction of liberalising the FDI regime and inviting global investors to participate in the India story will continue. Approvals under Press Note 3, which had come into effect during the pandemic lockdown in order to protect Indian companies from becoming vulnerable to foreign buyers, are gradually becoming smoother. The production-linked incentive scheme may include more sectors to attract both domestic and global investments.

Introducing necessary amendments to provide another shot in the arm for the Insolvency and Bankruptcy Code, or IBC, seems to be on the horizon. The coming months may witness the strengthening of the judicial benches to tackle the burden of pending cases and the issuance of crucial clarifications on gaps. Steps to ensure that all stakeholders involved mandatorily adhere to the prescribed timelines may also be on the cards, as greater delays directly impact recovery rates. The high number of cases going into liquidation has been a cause for concern for stakeholders; enforcing strict timelines could also result in fewer companies going down the liquidation route.

SEBI’s recent directive on market rumour verification requirements represents the overarching emphasis on improving transparency and governance. This will not only aid in protecting investor interests but also build confidence within India’s capital markets. Furthermore, SEBI may consider instituting a mechanism to derive more information from key managerial personnel if the market rumour relates to them in order to ensure they perform their statutory obligations.

Compliance on all fronts, including tax, data privacy, antitrust, and corporate governance as a whole, will continue to be in focus.

The new Digital Personal Data Protection Act and the proposed Digital India Act are significant steps towards the next era of tech-powered growth. In line with global best practices, the government has been working towards a modern set of laws that can keep abreast of the rapid development of new technologies such as AI, blockchain, and more. This direction will remain; however, greater flexibility will be key when it comes to implementing these new laws on the ground.

The new coalition government may need to rethink certain approaches to address concerns from citizens and entrepreneurs alike, especially on buzzing topics such as Gen AI tools and copyright, data transfer, data localisation, explicit consent from users, and processing children’s data. With the rise of tech adoption, especially in the post-pandemic period, white collar crimes have also seen an increase. Tighter regulatory scrutiny is expected to continue in the coming months.

Incentives for manufacturing, especially in sectors such as batteries, solar power, wind power, green hydrogen, drone technology, and semiconductors, are likely to continue. These are all sectors that have strong fundamentals and show great promise, with global investors keen on participating in these growth stories. With an outlay of $3.4 billion, the National Green Hydrogen Mission has the potential to turn India into a global production hub.

Sectors like aerospace, defence, and drone manufacturing have been in focus recently in terms of new business-friendly policies, and this momentum will continue. The fintech space is another interesting sector, with the Indian market expected to reach $1 trillion by 2030. The RBI is likely to provide further clarifications to address certain grey areas on NBFC regulations and clearly define guidelines for payment aggregators in the coming months.

A sharp focus on EV manufacturing, charging infrastructure, and battery standardisation is likely to remain. The entry of global EV players such as Tesla looks to be on the cards; however, it remains to be seen whether the timeline will be stretched. The FAME scheme may be extended beyond the July 31 deadline; alternatively, a new policy could be announced in the coming weeks.

With unemployment being one of the main issues, it is likely that a multi-pronged approach will be adopted to address this pressing concern. The government may create opportunities at various levels for the private sector to collaborate with public sector undertakings to address unemployment and underemployment. Steps to address tax-related concerns, as well as long-term programs for upskilling, retraining, and higher education reforms, may be taken.

The timelines for the implementation of the new labour codes may be extended, and the rollout may be staggered. Most states appear to have formulated the rules for the Wage Code's implementation, potentially leading to its early rollout. However, for the remaining codes, the formulation of rules is still underway by the states, and the new Parliament may want to introduce changes to the language of the codes.

All in all, the forward march towards modernity, digitisation and enhanced ease of doing business is set to continue.

Haigreve Khaitan is Senior Partner at Khaitan & Co.

The views expressed here are those of the author and do not necessarily represent the views of NDTV Profit or its editorial team.