Reforms are often seen as the engine of growth, but the term now covers both genuine structural shifts and superficial interventions that merely redistribute inefficiencies. True reform enhances economic freedom, reduces transaction costs and aligns incentives toward productivity. It was seen in Margaret Thatcher's privatisation drive, which unleashed market forces in the UK. In contrast, Japan's post-bubble financial “reforms” preserved inefficiencies, prolonging stagnation. Beyond policy changes like deregulation and trade liberalisation, process reforms are equally vital. Douglas North's institutional economics underscores that long-term growth depends on improving the mechanisms that govern economic transactions, as exemplified by the US Interstate Commerce Act (1887), which redefined market efficiency, and India's GST reform, whose success hinges on continuous process improvements.
As Ronald Coase emphasised, reducing transaction costs is central to market efficiency—reforms must not only remove distortions but also simplify processes that enable smoother economic functioning. Reform, therefore, is not a one-time event but a continuous recalibration of institutions, incentives, and mechanisms. The Union Budget reflects this ongoing reformist orientation, pushing for efficiency, competitiveness, and fiscal sustainability.
The Budget sets a reform-oriented agenda across six key areas—taxation, power sector, urban development, mining, financial sector, and regulatory reforms—each strategically targeted to enhance India's growth potential and global competitiveness over the next five years. If implemented properly, these reforms aim to unlock efficiencies, attract investments, and streamline governance to create a high-growth economic environment.
'Trust First, Scrutinise Later'
Tax reforms have played a significant role in simplifying compliance and improving the ease of doing business. Over the past decade, faceless assessment, a taxpayer charter, faster refunds, and the ‘Vivad se Vishwas' scheme have reduced litigation and enhanced voluntary compliance. The Budget builds on these efforts with a ‘trust first, scrutinise later' approach, ensuring a more taxpayer-friendly regime.
The Finance Minister has announced that the New Tax Bill will be introduced next week, marking one of the most significant overhauls of the direct tax system in recent decades. A key advantage of this reform is its potential to drastically reduce tax-related litigation. According to the Ministry of Law's Legal Information Management & Briefing System (LIMBS), which tracks cases involving the Union government, the Central Board of Direct Taxes (CBDT) has been entangled in approximately 60,000 pending tax cases across various courts and tribunals. The majority of these disputes are before the High Courts, contributing to judicial backlogs and delays.
Why A Simplified Tax Code Is Crucial
A streamlined and simplified tax code—potentially reducing both the number of chapters and the overall word count—would enhance tax certainty. Fewer words translate into fewer opportunities for ambiguous interpretations and legal disputes. While it is challenging to undertake at this stage, the government should ideally have conducted a comprehensive review to identify the specific provisions that generate the highest volume of litigation. Eliminating or restructuring these contentious sections should be a top priority to ensure a more predictable and efficient tax regime.
In addition to the proposed reforms in indirect taxes, there is a pressing need to address complexities within the Goods and Services Tax (GST) framework. Currently, India's GST system operates with a four-tier structure, featuring rates of 5%, 12%, 18% and 28%. This multiplicity of tax slabs contributes to compliance challenges for businesses and administrative burdens for tax authorities. However, implementing such rate rationalisation falls under the jurisdiction of the GST Council—a constitutional body comprising the Union Finance Minister and state finance ministers. Achieving consensus within this council is essential, as states must agree to any proposed changes. A more straightforward tax structure would alleviate the burden on businesses, promote a more transparent and predictable tax environment and contribute towards economic growth.
The Existing Insurance Framework
Apart from this, the financial sector remains critical to sustaining economic growth, and the Budget introduces several initiatives to strengthen capital flows, deepen financial inclusion, and improve regulatory efficiency. The Foreign Direct Investment (FDI) limit in the insurance sector will be increased from 74% to 100%, but only for companies reinvesting all collected premiums in India. This move will boost long-term financing for infrastructure and social security.
However, while this reform encourages greater foreign participation, a comprehensive review of the existing insurance regulatory framework is necessary to address structural inefficiencies and ensure a balanced approach to market liberalisation. A critical aspect of this review involves assessing the regulatory architecture governing insurance investments and capital adequacy requirements. Currently, the Insurance Regulatory and Development Authority of India (IRDAI) enforces stringent solvency norms, which often constrain insurers from expanding coverage in high-risk segments. With increased foreign participation, it becomes imperative to revisit these norms to strike a balance between financial stability and market expansion. Additionally, the framework governing product innovation and pricing needs to be revisited to encourage greater flexibility while maintaining consumer protection safeguards.
Wooing Investors
To attract foreign investment, the model Bilateral Investment Treaty (BIT) will be revamped to offer investor-friendly provisions while aligning with national economic priorities. This is a welcome move. India's existing Bilateral Investment Treaty (BIT) framework, based on the 2015 Model BIT, presents significant challenges that hinder its effectiveness in attracting foreign investment. The framework prioritises the state's regulatory sovereignty over investor protection, limiting the scope of ISDS (Investor-State Dispute Settlement) claims through restrictive provisions such as the five-year domestic litigation exhaustion requirement and the exclusion of taxation matters from treaty disputes. These provisions create uncertainty for investors as they reduce the enforceability of protections against arbitrary state actions. Additionally, the exclusion of the Most Favoured Nation (MFN) clause prevents investors from benefiting from better terms granted to others, reducing India's competitiveness in global investment agreements. The broad discretionary powers retained by the state, coupled with the ambiguity in key provisions like the treatment of investments, have led to India struggling to negotiate BITs with major economies, as seen in its prolonged negotiations with the EU and the UK. While India's recent BIT with the UAE marks a slight departure from the rigidities of the Model BIT by reducing the waiting period for ISDS claims to three years, the framework still lacks investor confidence and remains a barrier towards creating a more stable and predictable investment environment.
Apart from this, regulatory reforms are central to improving the ease of doing business and modernising governance. The Budget proposes a High-Level Committee to review non-financial sector regulations, certifications, licenses, and permissions, with recommendations expected within a year. The goal is to transition towards trust-based economic governance and significantly reduce compliance burdens, particularly in inspections and licensing. Again, this is a wonderful move. But we need to focus more on regulatory design. The tenure of this committee should be longer and it should review all such regulations, and simplify the language of both the acts and rules and regulations under the act. This is an important exercise to declutter the system.
The Jan Vishwas Bill 2.0
The Finance Minister has also announced that following the success of the Jan Vishwas Act, 2023, which decriminalised over 180 legal provisions, the government will introduce the Jan Vishwas Bill 2.0 to further decriminalise 100 additional provisions across various laws. This should be introduced as soon as possible as it has the potential to further contribute towards ease of doing business.
The Budget also introduces crucial sectoral reforms in power, urban development, and mining to drive sustainable growth. In the power sector, the government plans to accelerate renewable energy adoption, modernise grid infrastructure, and streamline power distribution regulations. Reliable and affordable electricity will be essential for industrial competitiveness and household welfare. While these steps are necessary, additional reforms are needed to address financial stress in power distribution companies (DISCOMs) and improve tariff rationalisation. Similarly, urban development remains a key priority, but more effort is required to strengthen municipal finance, enhance land-use planning, and address urban governance inefficiencies. The mining sector, critical for India's self-reliance in raw materials, will see regulatory reforms aimed at improving transparency, streamlining auction processes, and attracting private investment in mineral exploration and extraction. These reforms will be pivotal in securing critical minerals for India's clean energy transition, but further regulatory clarity is needed to balance environmental sustainability with mining sector growth.
Alongside this, the Budget also outlines a transformative agenda for India's nuclear energy sector. Recognising the need for greater self-reliance in energy generation and reducing dependence on fossil fuels, the government is facilitating the expansion of nuclear power infrastructure. A key aspect of this reform involves easing restrictions on private sector participation in nuclear energy, allowing for joint ventures in fuel supply, reactor technology, and waste management. Additionally, reforms in the regulatory framework aim to fast-track approvals for new projects while ensuring safety and environmental compliance. The move aligns with India's long-term goal of achieving energy security, but more is needed to create a more investor-friendly policy environment, including clearer financing mechanisms, public-private partnerships, and integration with global supply chains for nuclear fuel and reactor components.
Thus, the Union Budget has laid out an ambitious, reform-driven agenda spanning taxation, financial sector liberalisation, regulatory overhauls, and sectoral interventions in power, mining, and urban development. However, the success of these measures depends on swift and effective implementation. Reforms that remain on paper do little to improve economic efficiency or investor confidence. The government must now focus on execution—simplifying compliance, ensuring regulatory predictability, and accelerating institutional capacity to deliver on these policy shifts.
(Aditya Sinha is a public policy professional.)
Disclaimer: These are the personal opinions of the author
