Every few years, an external crisis exposes India's economic vulnerabilities, the latest being from West Asia. In such moments, policymakers often focus on external causes. But the more important question is how India can shield itself from such shocks. The answer lies in 5 reforms:
Tackle gold, crude oil imports India imports about 85% of its crude oil requirements and more than 90% of its gold demand. Reducing this dependence will need putting more of the gold already available within the country back into circulation.
Gold monetisation scheme (GMS), introduced in 2015, has failed to attract participation due to low awareness, high deposit thresholds and modest returns. It should be revamped by lowering minimum deposit requirement from 10 gm to 1-5 gm, linking returns to gold prices rather than to a fixed 0.5-2.5%.
International Bullion Exchange at GIFT City has fallen short of expectations, thanks to unresolved GST issues surrounding electronic gold receipts (EGRs), which facilitate digital gold trading. Clarifying tax treatment of converting physical gold into EGRs and vice versa would encourage broader participation.
States should identify sectors where fuel use can be reduced without affecting productivity. Targeted transition programmes can promote CNG, LNG, electric mobility and hybrid technologies.
Attract stable, long-term foreign capital FPIs and FIIs have pulled about ₹2.25 lakh cr out of equities in the first 5 mths of 2026. One step to revive foreign investor interest would be to rationalise or eliminate capital gains tax on listed equities, particularly for long-term investors. At present, both domestic and foreign investors pay 20% tax on gains from investments held for up to 1 yr, and 12.5% on those held longer.
Curb frivolous tax demands A recent Parliamentary Standing Committee report highlighted I-T department's poor litigation record, with success rates of 12% in high courts, 14.5% before I-T Appellate Tribunal, and 26.3% in Supreme Court.
Tax notices and demands should face stricter scrutiny before issuance, while tax laws should apply prospectively rather than retrospectively. I-T Act 2025, and Rules 2026, which came into effect on April 1, are expected to reduce litigation. Whether they achieve these objectives remains to be seen.
There must also be consequences for raising unsustainable tax demands. Businesses often spend years contesting assessments that are eventually overturned by appellate authorities and courts, while officials face little accountability. Such cases should reflect in performance reviews, and in cases of arbitrary or high-pitched assessments, a penalty should be considered.
Fix GST litigation gridlock A key GST promise was a simpler and more uniform tax system. Yet, businesses continue to face parallel investigations by CGST, DGGI and SGST authorities on the same issues because Section 6(2)(b) of CGST Act bars overlapping proceedings only when they arise from the same facts and tax period. Although GST Appellate Tribunal became operational only recently, an estimated 4-5 lakh appeals remain pending nationwide. Financial implications of such proceedings are immense for businesses.
GoI should establish a clear framework to prevent overlapping investigations, ensure consistent interpretation of GST laws and reduce the compliance burden. It should also fast-track disputes involving ₹5 cr or more to unlock capital tied up in mandatory pre-deposits.
Invest in R&D If India is to evolve from a large market into a global tech and manufacturing leader, the pittance India spends on R&D (0.6-0.7%) must change. Greater emphasis should be placed on sectors like semiconductors, biotech, clean energy, defence tech and AI, where future economic and strategic advantages will be shaped.
Businesses account for 70-80% of R&D spending in China, the US and South Korea, compared with 30-40% in India. Increasing private-sector participation is critical. One way to achieve this is through targeted tax incentives, backed by safeguards to ensure that only genuine R&D expenditure qualifies.
India once offered a 200% weighted tax deduction for in-house R&D. But this was reduced to 100% in 2020. A carefully designed revival, subject to evaluation, could spur greater corporate investment in R&D.
External shocks are unavoidable. But the challenge lies in how quickly reforms can be undertaken to reduce impact of future crises.
