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India’s economy grew 8.2% in the second quarter of the year, above estimates, supported by policy changes in the ministries of taxation, labour, micro, small and medium enterprises (MSME), energy, foreign investment and legal framework.
GST 2.0
One of the biggest changes was the implementation of GST 2.0 in September, the most significant overhaul of the Goods and Services Tax (GST) since its launch in 2017. The earlier four-rate structure was replaced with a simple two-rate system of 5% and 18%, while select items were placed under the 40% slab.
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The changes reduced compliance complexity and reduced costs for consumers. Rate rationalization also supported consumption, with Diwali sales reaching ₹6.05 lakh crore. GST revenue in the financial year 2025-26 (FY26) is expected to exceed the budget estimate.
income tax reform
The Union Budget introduced income tax relief for the middle class by removing the tax liability for individuals earning up to ₹12 lakh annually. Simultaneously, the old income tax framework, which had over 4,000 amendments, 819 sections and over 5 lakh words, was replaced by a new Income Tax Act with 536 sections and about 2.6 lakh words.
labor reforms
Labor reforms were another major pillar, with 29 laws being consolidated into four labor codes. These reforms focused on wages, industrial relations, social security and workplace safety, while also aiming to improve female workforce participation and reduce unemployment.
A major change allows businesses with fewer than 300 workers to lay off and close without prior government approval, compared to the earlier limit of 100 workers.
msme reforms
The MSME definition was modified to allow higher investment and turnover limits. Investment limit for micro enterprises increased from ₹1 crore to ₹2.5 crore and turnover from ₹5 crore to ₹10 crore.
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Investment limit for medium enterprises increased from ₹50 crore to ₹125 crore and turnover from ₹250 crore to ₹500 crore. Credit guarantee cover for micro and small enterprises was also increased from ₹5 crore to ₹10 crore.
peace bill
Parliament passed the Sustainable Use and Advancement of Nuclear Energy for Peace Bill, or Transforming India, ending the state monopoly in the nuclear sector. The law allows private and foreign investment in civilian nuclear projects and introduces a modified civil liability framework.
Jan Vishwas law
Under the Public Trust Act, more than 200 minor offenses were decriminalized and many old laws were abolished. The government is preparing for the third phase of public trust to decriminalize more provisions.
FDI Reforms
Foreign direct investment reforms were introduced in 2025, including a new insurance law that allows 100% FDI in insurance companies. The move is expected to attract foreign capital and increase competition in the sector.
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employment guarantee law
The Employment Guarantee Act, also known as the Develop India Guarantee for Rural Employment and Livelihood Mission Act, has increased the guaranteed workdays for rural households from 100 to 125 days while supporting rural infrastructure and livelihoods.
legal reform
Legal reforms were introduced through the Indian Code of Justice, which replaced the Indian Penal Code of 1860. The new law addresses cyber terrorism, organized crime, economic subversion and gender-based violence, while recognizing digital evidence, mandating e-FIRs and setting timelines for trials.
reducing regulatory burden
Additionally, the government reviewed quality control orders, removed mandatory compliance for 76 products, and identified over 200 products for regulation. This reduced the regulatory burden for MSMEs and exporters.
The government has indicated that further reforms aimed at making life easier and improving ease of doing business will be gradually introduced from early 2026.
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