India plans compliance reforms, seamless GST refunds, PLI fixes to woo investors

Mint

2 days ago

New Delhi: The government is working on a plan to substantially ease compliance burdens and eliminate policy bottlenecks as well as procedural hurdles to attract investments, after India's talks for a trade agreement with the US stalled over the latter's demand for greater market access to the politically-sensitive agriculture and dairy sectors.
The government has asked 37 of its ministries to submit a detailed report on the key compliance requirements that are creating roadblocks for manufacturers, exporters, investors and small enterprises, hurting their ability to conduct their businesses smoothly, three government officials directly involved in the ongoing consultations said on the condition of anonymity.
One of the key areas under discussion to strengthen the domestic manufacturing base is reforming the GST reimbursement mechanism on the lines of the income tax refund, where an assessee gets refunds soon after the verification of their returns in an automatic, seamless manner, the first of the three officials cited earlier said.
During discussions with officials from various ministries and separately with exporters and manufacturers, a critical concern that was flagged was the absence of an automatic refund mechanism after disputes flagged with a red alert notice are resolved, the second person said.
'Traders currently have to apply afresh to claim refunds even after the dispute is settled and the red alert is removed, creating an unnecessary compliance burden."
Queries sent to the ministries of commerce, finance, external affairs, the prime minister's office, and the GST secretariat remained unanswered till press time.
There remain a few challenges for GST refunds, particularly for exporters and MSMEs (micro, small and medium enterprises), such as delays in refunds, and procedural complexities that need to be addressed, Hemant Jain, president, PHD Chamber of Commerce and Industry, said.
'For traders, these delays directly translate into higher financial costs, reduced competitiveness, and uncertainty in fulfilling orders. Removing these hurdles will not only improve the ease of doing business but also bolster India's trade efficiency and export growth, especially with rising geopolitical uncertainties," Jain added.
As talks with the US for the bilateral trade agreement (BTA) hit a stalemate, president Donald Trump imposed an additional 25% punitive tariff on India for buying Russian oil and weapons, taking the total import duty on Indian goods to 50%.
The government is leveraging this trade crisis to fast-track ease-of-doing-business reforms, including a single-window clearance system inspired by passport services, and simplified procedures for land acquisition and contract management, according to a Mint report on 9 August.
As of 30 June, total direct and indirect tax arrears in India amounted to over ₹54.53 trillion, the government informed Parliament on 5 August. In a written reply to a question in the Rajya Sabha, minister of state for finance Pankaj Chaudhary stated that pending indirect tax arrears stood at more than ₹7.01 trillion, while direct tax arrears were over ₹47.52 trillion.
'The delay in processing GST refunds has been a significant concern for businesses, particularly exporters and manufacturers, as it affects their working capital and cash flow," said Abhash Kumar, trade economist and assistant professor of economics at Delhi University.
'Other proposals include easing incentives reimbursement norms, softening rules for opening bank accounts for Overseas Citizen of India (OCI) card holders, and removing redundant approvals for foreign investors," said the third person.
The government is also keen on simplifying the claims procedures under the production-linked incentive (PLI) scheme, designed to boost domestic manufacturing.
'Easing procedural challenges in claiming incentives under the PLI scheme is a key focus for the government. The aim is to make the process hassle-free, encouraging more investments that will boost the manufacturing sector and create employment opportunities," this person added.
The priority is to maintain the momentum of manufacturing to boost employment and sustain domestic consumption, this person said.
Perhaps due to the cumbersome process of claiming incentives under the PLI scheme, many beneficiaries are hesitant to come forward and claim their dues. As a result, as of June 2025, only ₹21,534 crore of the allocated ₹1.90 trillion had been disbursed, with companies producing just 37% of the targeted goods.
The PLI schemes, covering sectors such as electronics, pharmaceuticals, food processing, and specialty steel, have attracted investments totaling ₹1.76 trillion and generated over 1.2 million direct and indirect jobs.
The disbursement has been uneven across sectors. For instance, the electronics and pharmaceutical sectors received about 70% of the total incentives for FY25, amounting to ₹5,732 crore and ₹2,328 crore, respectively. In contrast, the telecom sector has seen a slower uptake, with only 21 out of 42 eligible firms receiving a total of ₹1,162 crore in incentives as of 31 March.
As the government discusses a comprehensive policy reset to boost manufacturing and attract investment, it is also consulting export promotion councils and manufacturers to rework India's export strategy, according to a Mint report dated 2 August.
This development follows a deadlock in the BTA negotiations between India and the US, which have been ongoing since June, Mint reported on 11 June.
The new export plan focuses on diversifying into key markets where India has or is close to finalizing free trade agreements (FTAs), including the UK, with which India recently signed an FTA, and the European Union, where talks are in the final stages with a deal expected before year-end. Other target markets include the UAE, Australia, Japan, and South Korea, all of which have existing FTAs with India.
The measures are an attempt to protect India's economic growth, which some economists fear could slip by 20 to 30 basis points to around 6.2% in the current fiscal year if the new tariffs are enacted.
'The impact on GDP may not be dramatic, but we could see growth closer to 6.2–6.3% in FY26," said Madan Sabnavis, chief economist at Bank of Baroda.
Key sectors such as textiles, which accounts for $10.91 billion in exports to the US, engineering goods ($19.16 billion), agriculture ($2.53 billion), gems and jewellery ($9.94 billion), leather ($948.47 million), marine products ($2.68 billion), and plastics ($1.92 billion) could face serious trouble if the 50% US tariff continues for along. Exports in these categories could fall by as much as 40% if the 50% tariff remains in place for an extended period.
India exported goods worth $86.5 billion to the US in FY25, accounting for 20% of the country's total merchandise exports of $433.56 billion during the year. India's total agricultural exports to the US stood at $2.53 billion in FY25, up 19.3% from $2.12 billion in FY24.