Five reforms that reshaped India’s economy — and what comes next – Firstpost

Twelve years after Prime Minister Narendra Modi first took office, the Indian economy looks markedly different from the one he inherited in 2014.

Back then, India was grouped among the world’s fragile five economies, struggling with high inflation, a widening fiscal deficit, weak investor confidence and policy paralysis. Today, India is the fastest-growing major nation and an increasingly important destination for global capital.

While economic outcomes are influenced by many factors, five major reforms undertaken during the Modi years have fundamentally changed how the Indian economy functions. Together, they form the backbone of what has come to be known as “Modinomics” — a model centred on formalisation, digitisation, infrastructure creation and manufacturing-led growth.

Yet as India looks ahead to its ambition of becoming a $10 trillion economy, economists argue that the next phase of reforms may prove even more difficult than the first.

GST: Creating a single national market

Among the most consequential reforms was the introduction of the Goods and Services Tax (GST) in July 2017.

The rollout was far from smooth. Businesses grappled with compliance requirements, changing tax rates and technological glitches. Critics questioned the complexity of the system and its impact on smaller firms.

However, GST achieved something that had eluded policymakers for decades: replacing a patchwork of state and central levies with a unified indirect tax regime.

By reducing interstate barriers and streamlining taxation, GST helped create a common national market, making it easier for businesses to move goods across the country and improving supply-chain efficiency.

Insolvency code changes the borrower-lender equation

The Insolvency and Bankruptcy Code (IBC), introduced in 2016, addressed one of India’s biggest economic challenges: bad loans.

For years, banks struggled to recover money from defaulting borrowers, resulting in mounting non-performing assets and stressed balance sheets.

The IBC shifted the balance of power towards lenders by establishing a time-bound framework for resolving corporate distress. While implementation challenges remain and resolution timelines have often exceeded targets, the code fundamentally changed the culture around debt repayment and corporate accountability.

The reform also helped banks clean up their books and restart lending, supporting broader economic growth.

Aadhaar, UPI and DBT transform the digital economy

Perhaps no reform has touched more Indians directly than the expansion of digital public infrastructure.

The combination of Aadhaar, Unified Payments Interface (UPI) and Direct Benefit Transfers (DBT) created a digital backbone that has reshaped welfare delivery, financial inclusion and payments.

Government subsidies increasingly reach beneficiaries directly, reducing leakages and dependence on intermediaries. UPI has transformed digital payments, making India one of the world’s leading real-time payments markets.

The broader effect has been the formalisation of large segments of the economy, bringing millions of individuals and businesses into the financial system.

India’s digital public infrastructure is now being studied by governments and institutions across the developing world as a model for inclusive growth.

Labour codes aim to unlock formal job creation

One of the less discussed but potentially transformative reforms has been the consolidation of 29 central labour laws into four labour codes.

After years of delays and political debate, the codes were finally implemented in November 2025.

Supporters argue that simplifying labour regulations can encourage firms to expand operations and hire workers formally rather than remaining small to avoid compliance burdens.

If implemented effectively, the reform could help address one of India’s most persistent challenges: creating large-scale, organised employment opportunities for a young and growing workforce.

The ultimate success of the labour codes, however, will depend on how states implement them and whether businesses respond with increased investment and hiring.

Industrial policy shift

The fifth pillar of Modinomics has been a renewed focus on manufacturing.

Through initiatives such as Make in India and Production-Linked Incentive (PLI) schemes, the government has sought to attract investment into sectors ranging from electronics and semiconductors to renewable energy and advanced manufacturing.

The approach marks a significant departure from earlier policy frameworks that largely relied on services-led growth.

The strategy has gained momentum amid global supply-chain diversification and the so-called China-plus-one trend, which has encouraged multinational companies to expand manufacturing bases beyond China.

Recent investments in semiconductor fabrication, electronics production and advanced manufacturing suggest the policy is beginning to yield results, though India still faces significant competition from other emerging economies.

Next challenge

Despite the progress, the next stage of India’s economic transformation may be harder.

Many of the reforms now needed are politically sensitive and have defeated multiple governments.

Land acquisition remains a major obstacle for industrial and infrastructure projects. Agricultural marketing reforms remain unfinished after the government’s controversial farm-law push was withdrawn following widespread protests.

Meanwhile, judicial delays and contract enforcement issues continue to weigh on business confidence and investment decisions.

Privatisation and asset monetisation also remain incomplete, raising questions about how far the state is willing to retreat from sectors where private capital could play a larger role.

What global investors want next

India today enjoys several structural advantages: favourable demographics, a large domestic market, a growing pool of engineers, expanding trade ties and rising geopolitical relevance.

But economists increasingly argue that the next wave of investment will depend less on incentives and more on predictability.

Global investors seek stable tax regimes, faster dispute resolution, deeper capital markets and regulatory consistency.

For India to become not just the fastest-growing major economy but also the preferred destination for long-term global capital, policy certainty may prove as important as growth itself.

The transformation from a country once viewed as one of the Fragile Five to one increasingly courted by global investors represents a significant shift in India’s economic story.

The Modi government’s economic approach has focused less on headline-grabbing measures and more on building systems: tax reform, digital infrastructure, insolvency mechanisms, labour flexibility and manufacturing incentives.

Those foundations are now largely in place.

The challenge ahead is ensuring that growth translates into broader prosperity, particularly for young Indians seeking better jobs, higher incomes and greater economic mobility.

The journey from a $4 trillion economy to a $10 trillion one will require more than strong growth rates. It will demand the completion of unfinished reforms and the political willingness to tackle the difficult issues that remain unresolved.

Twelve years on, the foundations of Modinomics are visible. Whether India can build the next storey will depend on the reforms still waiting to be undertaken.