India needs a fresh reform roadmap to achieve its Viksit Bharat growth objectives, according to Montek Singh Ahluwalia, one of the principal architects of India's 1991 reforms. Speaking in an exclusive interview with Business Standard, Ahluwalia emphasized that the Viksit Bharat objective has raised expectations of younger people and requires clear statement of specific policy initiatives. He noted that while India's growth rate after 1991 has been much higher than before, the country did not achieve the miracle growth rate that many East Asian countries did, primarily because the reforms were not strong enough. Ahluwalia warned that delaying reforms will only jeopardise the future of today's youth and that what was achieved in the past 35 years should have been accomplished in half that time.
India's ambition of becoming a developed economy requires predictable tax, trade and regulatory policies to attract foreign capital and achieve its Viksit Bharat growth objectives. According to reports from Business Standard, global investors view policy uncertainty and ambiguity as significant risks that can act as an additional tax, raising the risk premium on Indian projects and increasing the cost of capital. The country is asking global firms to commit capital, build factories, and use India as an export base - commitments made over decades, not quarters. To achieve the vision of becoming a developed economy by the centenary of our independence, India will have to grow at 8-9 per cent per annum and raise its investment rate from the current 30 per cent of GDP to close to 40 per cent. Given India's savings-investment gap, we require foreign capital and an expansion in exports and foreign direct investment (FDI).
Ahluwalia identified four key challenges facing India's reform agenda today that differ significantly from 1991. First, the earlier vision of a globalised world working according to multilaterally agreed rules has evaporated, with the US formally abandoning the system and claiming to operate transactionally. Second, geopolitics has created a more fragmented world, with the US no longer seeking to contain China but only to balance it, creating implications for South Korea, Japan and Taiwan. Third, technology is changing faster than ever, with artificial intelligence developing rapidly and having negative effects on certain types of jobs. Fourth, climate change is gaining ground and requires restructuring of policies in many areas. He emphasized that business as usual - the current 6.5 per cent growth rate - will not be enough to get us to Viksit Bharat, and that everyone rightly talks of the need for more reforms, but there is no agreement on what these reforms should be.
India's tax rates on foreign portfolio investors (FPIs) range from 15 to 24 per cent, depending on whether gains are long-term or short-term, making it a clear outlier compared to economies such as South Korea, Taiwan, Thailand, Vietnam, Malaysia, and Brazil that levy close to zero per cent taxation on FPI capital gains. As reported by Business Standard, tax policy needs greater transparency and predictability, with reduced litigation and swift dispute resolution. Currently, approximately ₹25 trillion is embroiled in income tax disputes, and another ₹5 trillion is in dispute over indirect taxes, which divert essential working capital and undermine economic confidence. The key cause of delays is vacancies, with the Comptroller and Auditor General (CAG) highlighting staffing shortages as a major factor behind drawn-out disputes. For example, vacancies in the Central Board of Indirect Taxes and Customs (CBIC) audit departments are nearly 40 per cent.
Ahluwalia stressed that much of the required investment increase should be private investment, and if that is not rising, the government should examine why. He noted that the earlier vision of a globalised world working according to multilaterally agreed rules has evaporated, with the US now claiming that it was "played" by its partners and wanting to operate much more transactionally. This creates uncertainty for Indian businesses and requires a clearer understanding of what policies will guide trade, finance, IT and e-commerce. The government should recognize that to export, India must import, with raw materials, components, and machinery being held up in Customs clearance straining working capital. Policy clarity must accompany digital integration, with advance rulings publicly available within 60 days and reasons regarding any deviations, ensuring that ambiguity repeatedly produces disputes and that companies and authorities arrive at different interpretations.
