Economic Reforms 2025: A Year in Review for UPSC

Context

Economic reforms in 2025 marked a shift from expanding regulatory frameworks to delivering measurable outcomes. The focus was on outcome-driven governance, simplifying systems, and boosting inclusive growth through taxation, labour, and trade reforms.

Income Tax Reforms (New Income Tax Act, 2025)

The Government introduced a comprehensive overhaul of the Income-tax Act, 1961, resulting in the New Income Tax Act, 2025.

Key Changes:

• Tax Exemption: Annual income up to ₹12 lakh is exempt from income tax under the new regime (effective exemption up to ₹12.75 lakh for salaried taxpayers with standard deduction).
• Tax Year Transition: Replaces the concepts of "Assessment Year" and "Previous Year" with a unified "Tax Year" (1st April to 31st March).
• Simplification: Consolidation of Tax Deducted at Source (TDS) provisions under a single section.
• Digitization: Focus on digital-first enforcement and faceless tax administration.

Labour Reforms

The Government consolidated 29 existing labour laws into four Labour Codes:

1. Code on Wages, 2019 — Uniform definition of wages and statutory minimum wages across sectors.

2. Industrial Relations Code, 2020 — Simplification of trade union and employment condition laws.

3. Code on Social Security, 2020 — Extension of benefits to unorganized, gig, and platform workers.

4. Occupational Safety, Health and Working Conditions Code, 2020 — Safeguarding worker rights and safe working conditions.

Note: Nearly 10 million Gig and Platform workers are now covered via annual social security support.

Rural Employment Reforms (Gramin Act, 2025)

The Viksit Bharat - Guarantee for Rozgar and Ajeevika Mission (Gramin) Act, 2025 replaces MGNREGA.

Key Features:

• Extended Guarantee: 125 days of wage employment per rural household in a financial year.
• Timely Payments: Wages must be paid within fifteen days of completion of work.
• Decentralized Planning: Projects flow from Viksit Gram Panchayat Plans (VGPPs), approved by the Gram Sabha.
• Admin Capacity: Administrative expenditure ceiling increased from 6% to 9%.

MSME and Ease of Doing Business

The Union Budget 2025-26 updated MSME classifications and introduced several support measures.

Revised MSME Thresholds:

Support Measures:

• QCO Relaxations: Additional compliance time for Micro (6 months) and Small (3 months) enterprises for Quality Control Orders.
• Credit Flow: Multi Credit Guarantee Scheme for MSMEs (MCGS-MSME) provides cover up to ₹100 crore for equipment and machinery.
• Collateral-Free Loans: Available up to ₹10 lakh for micro and small enterprises.

Next-Generation GST (GST 2.0)

GST underwent structural reforms to reduce complexity and classification disputes.

Key Highlights:

• Two-Slab Regime: Transition towards a simpler structure with two primary slabs (5% and 18%).
• Taxpayer Base: Expanded to over 1.5 crore taxpayers.
• Revenue: Gross collections reached ₹22.08 lakh crore in FY 2024–25.
• Refunds: Implementation of risk-based auto-refunds to assist MSMEs and Startups.

Export Promotion Mission (EPM)

Approved with an outlay of ₹25,060 crore for FY 2025–26 to FY 2030–31.

Strategic Components:

• Niryat Protsahan: Financial support including affordable trade finance and credit enhancement.
• Niryat Disha: Non-financial enablers such as branding, logistics, and quality compliance.
• Target: Strengthening exports from non-traditional districts and empowering MSMEs.

Significance

These reforms collectively represent a move towards outcome-based governance. By aligning tax cycles, modernizing labour safety nets, and simplifying business compliance, the measures foster institutional trust and economic resilience, aimed at reaching Viksit Bharat @2047.