Do it yourself

Recently, NITI Aayog published a working paper titled “Towards India’s Tax Transformation: Decriminalization and Trust-Based Governance”. The paper is a follow up to the recent enactment of the Income Tax At 2025. It is an extremely important step for making the tax governance structure trust based.

The paper seeks to provide a comprehensive and critical analysis of the criminal provisions within the Income-tax Act, 2025, mapping the present extent of criminalization, documenting omissions and modifications, and recommending a trust-based regulatory transition for India’s direct tax regime.

Recognizing the evolving policy landscape which stresses ease of business, citizen-centricity, and the need to move away from “fear-based” enforcement, the paper evaluates each criminal provision through a principled criminal law-making framework rooted in jurisprudence, comparative regulatory best practices, and provides recommendations. Its central premise is that decriminalization, rationalization of punishments, and emphasis on proportionate sanctions will collectively align India’s income-tax law with the vision of a fair, accessible, and modern compliance regime.

Summary of the working paper

·         The paper argues that India’s direct tax regime historically over-criminalized even minor procedural defaults. The Income Tax Act 2025 reduces criminalization but still criminalizes 35 acts across 13 provisions.

·         Applying a principle based criminal law creation framework (harm, necessity, proportionality, intent, clarity), it proposes further decriminalization, removal of mandatory jail terms, restoring burden of proof to prosecution, clearer drafting, and periodic review.

·         It recommends prosecution should be reserved only for willful / fraudulent / significant harm behaviors. All else must be a civil penalty domain.

Strong points

The paper correctly identifies the problem of reverse burden of proof in ITA 2025.

Appropriately flags the disproportionate penalty design relative to the BNS

Correct categorization: obstruction / evasion / payment failure / public servant breach

For the first time a government working paper explicitly shifts “normative anchor” from “enforcement” to “trust”. To this extent there is a paradigm shift.

Gaps

Economic modelling absent: The paper doesn’t quantify fiscal impact of decriminalization vs retaining criminal penalty for 6 core offences. This would be a critical input for developing a policy consensus amongst various organs of the policy ecosystem.

Operational tradeoffs not analyzed: CBDT has historically used criminal threat to solve compliance capacity problem — paper assumes that trust-based regime reduces admin cost but does not model enforcement substitution cost.

Digital rights section inadequate: The section on access to passwords / virtual digital space rightly flags constitutional risk, but it does not propose a constitutional safe harbour architecture. Merely stating risk is not sufficient policy, in my view.

No sunset architecture: The Paper proposes periodic legislative review but does not create an actually enforceable review mechanism (eg automatic expiry unless reviewed).

No tiering by taxpayer class: The compliance behavior of various entities - MSME, gig, self-employed, salaried - is structurally different. A single criminalization framework may not be optimal.

No distinction between pre-assessment vs post-assessment domain: Anecdotally, most criminal threats in India are misused in pre-assessment stage. That is where maximum fear is. Paper doesn’t solve this location of harm.

Suggestions

Policy Design Enhancements

·         Create a mandatory 3 tier compliance framework

Tier 1 → civil / monetary

Tier 2 → administrative sanctions (suspension of benefits, loss of fast track processing eligibility)

Tier 3 → criminal only for fraud / fabrication / concealment > threshold

·         Make fraud the only anchor for criminal prosecution — remove “willful” / “knowledge” from the criminal domain entirely.

·         Introduce statutory requirement of “loss to revenue proven / or reasonably demonstrable” as condition precedent for criminal prosecution.

·         Introduce decriminalization sunset — every 5 years offences auto lapse unless reconfirmed.

·         Create statutory economic impact statements for introduction or retention of each criminal offence (OECD style).

·         Shift burden of proof back to prosecution & codify it explicitly.

Digital Rights

·         Separate digital compelled access into national security statute not tax statute - create clear bright line: no compelled password disclosure for tax.

·         Any digital compelled access must require judicial pre-authorisation (not officer discretion).

Conclusion

This is one of the most important tax policy drafting direction papers in the last 20 years. However, there is a risk that this remains normative but NOT enforceable reform. If NITI fixes some missing parts and layers, especially in fiscal impact modelling and behavioral economics, this could become an illustrative reform for most emerging market governments.

 The Niti Aayog published a working paper titled “India’s Path to Global Leadership: Strategic Imperatives for Viksit Bharat @2047”, in April 2025. The paper presents a roadmap for India’s economic growth, encompassing sustainability, social inclusion, national security, and global leadership.

Micro, small and medium size enterprises (MSME) have been widely recognized as the core of India’s development plan. MSME are not only critical from their economic importance, but are also drivers of social development. MSMEs generate large employment; help in managing regional imbalances; help in bridging income and wealth inequalities; and most importantly, enable the large enterprises to attain competitive scale and efficiency. MSMEs contribute 30.1% to India’s Gross Value Added and 45.79% to exports (₹12.39 lakh crore in 2024-25).

Urbanization is intrinsic to development and often serves as a major driver of economic growth. As India reaches tipping point of transitioning from a mostly rural to an urban society, the focus must be on ensuring the best opportunities for economic growth for all sections of the society. — Dr. Rajiv Kumar, Former Vice Chairman, NITI Aayog

In October 2020, the NITI Aayog formed an Advisory Committee on ‘Reforms in Urban Planning Capacity in India’, to find ways to face the multiple challenges being faced in the cities and India’s commitments towards global agendas. After extensive deliberation with domain experts and think tanks, the Committee presented its report in September 2021. The highlights of the report are summarized below.

·         India is the second largest urban system in the world with almost 11% of the total global urban population living in Indian cities. In absolute numbers, the urban population in India is more than highly urbanized countries/regions across the globe. Observing India’s urbanization through Western lens has become a practice . Experience has shown that such objectivity diminishes the motivation and confidence needed to generate innovative solutions for indigenous problems. Indian cities are different from their Western counterparts in terms of culture, demography, lifestyle and so on. Adopting Western practices without tailoring them to suit Indian needs is not advisable.

·         India’s urban story may be lauded globally or suffer irreversible damages in the next 10-15 years depending upon corrective policy measures and actions taken at the beginning of this decade.

·         Over the years, cities have expanded and become burdened by the stresses and strains of unplanned urbanization, the brunt of which is faced by the poor and the marginalised, the biodiversity and the economy.

·         In urban areas, land is confronted with competing uses due to market forces, social necessities, as well as environmental concerns.

·         Issues like lack of availability of serviced land, traffic congestion, pressure on basic infrastructure, extreme air pollution, urban flooding, water scarcity and droughts are not merely a reflection of infrastructural shortcomings in the cities. These issues indicate a deep and substantial lack of adequate urban planning and governance frameworks.

·         Urban planning, which is the foundation for the integrated development of cities, citizens, and the environment, has not received adequate attention. A study conducted by TCPO and NIUA for NITI Aayog indicates that over 12,000 posts for town planners are required in the State town and country planning departments. This is in stark contrast to the present situation. There are fewer than 4000 sanctioned positions for ‘town planners’ in these departments, half of which are lying vacant.

·         A significant proportion of urbanization in the country is unacknowledged and unaddressed. Almost half of the 7933 ‘urban’ settlements are census towns, that is, they continue to be governed as ‘rural’ entities. Small and medium towns face vulnerabilities due to rapid growth and inadequate planning. 65% of the 7933 urban settlements do not have any master plan.

·         In many cities, development control regulations were formulated several decades ago and have been updated arbitrarily without sufficient empirical evidence on their impacts

·         The transfer of the urban planning function from States/UTs to elected urban local governments did not happen as was envisaged through the Constitutional (Seventy-Fourth amendment) Act 1992. Many agencies are involved in urban planning, implementation, infrastructure development at the city as well as State levels. The existing framework has become complex, which often leads to overlapping of functions, lack of accountability and coordination, time delays, resource wastage, etc.

·         Massive capacities for problem-solving, innovation, and ideation are required to address the present and future challenges in the planning and management of cities, towns, villages and their infrastructure. It may not be feasible to create such capacities in the public sector given the size and scale of urbanisation in India. However, the ecosystem of the private sector in urban planning domain has remained under-developed.

·         The country has been producing graduates with degrees such as Bachelor of Planning since more than 3 decades and Master of Planning since early 1950s. However, so far, the urban planning profession has not yet gained a strong and unique identity of its own. As a result, prospective employers, unaware of these courses and skill sets of available graduates, end up hiring professionals from other disciplines to undertake the tasks of planning, thereby creating a negative feedback loop.

The Committee suggested measures to strengthen the three pillars of cumulative urban planning capacity in the country: public sector, education/research sector, and private sector. The suggestions include programmatic intervention for planning of healthy cities, optimum utilization of urban land, ramping up human resources, re-engineering urban governance, involving citizens in urban planning, building local leadership, and enhance participation of private sector.

The committee advised that “The political leadership, decision-makers and planners need to reach a common consensus that a promise to save the environment from the strains of urbanization is a promise of economic growth in the long run. The road to reform may be long. Collaborative, concerted and cooperative efforts are required to strengthen the urban planning capacity of the country. The moment to start is now, if the country has to keep pace with the emerging demands of time.”

The finance minister took cognizance of the report and devoted six paragraphs in the budget speech of February 2022, while presenting the union budget for 2022-23. The FM proposed setting up a high-level committee of urban planners and economists to make recommendations on urban sector policies, capacity building, planning, implementation, and governance. She pledged support to the states for urban capacity building. Five existing academic institutions in different regions were designated as centers of excellence with endowment funds of INR 250 crore each, tasked to develop India-specific knowledge in urban planning and design.

I hope we shall see some results in the current tenure of the NDA government.

Also see Growing like ginger - 1

All citizens of India are very well aware that these are not some random pictures of India’s major metro cities. These represent regular life of the citizens of these cities. Water shortage, water logging, traffic jams, unhygienic colonies inhabited by poor, unplanned and illegal constructions, encroachment of public spaces, dangerously hanging electric supply wires, narrow lanes where fire tenders cannot reach in case of fire accident, stray animals posing risk of peoples’ life, are some of the common characteristics of Indian urbanization.

Numerous tier 2 towns and cities in India carry distinguished history, culture and traditions within themselves. However mostly unplanned and unmindful growth has made these cities look alike. Today one would struggle to distinguish Kashi, Patna, Bareilly, Moradabad, Aligarh, Agra, Panipat, Hissar, Jhansi, Praygraj (Allahabad) from each other. They all are equally cacophonous, raging, dirty, ill, concretized and mostly unlivable.

The roads are occupied by cycle and e-rickshaws, cows, stray dogs, a melee of young rash bikers, mini busses, cars, overloaded auto rickshaws, and street vendors. To make the things worse, most shop keepers encroach the footpaths in front of their shops. Shoppers and goods suppliers park their vehicles on roads. Pedestrians are forced to walk on roads. Brawls over parking are common and frequent.

Cities are growing like ginger - in all directions and without any plan. Each marriage adds a new room to already crumbling and overcrowded house. A shop mushrooms in front room or courtyard for every unemployed youth.

Urbanization is one of the central themes of the India growth story. With this state of unsustainable urbanization, the India growth story itself faces the risk of failing. A September 2021 NITI Aayog had reflected on this issue, but nothing much seem to have done about this. To continue tomorrow…

 The NITI Aayog recently published “India Innovation Index 2021” report, which presents “an in-depth analysis of the state of innovation in the Indian economy”. The India Innovation Index 2021 presents state-wise rankings based on the innovation landscape and performance of the country’s states and union territories. The latest framework of the index has been mapped from the Global Innovation Index, published annually by WIPO (World Intellectual Property Organization).

The report earnestly recognizes that human capital is the source of innovative ideas, knowledge, and practices. It notes that high innovation capabilities need heavy investment in human capital development at all levels to develop skills beyond technical knowledge, e.g., imaginative thinking, devising methods to tackle complex issues and keeping pace with the times.

The report emphasizes “the practice of promoting innovation at the grassroots is necessary to fully utilise the potential of the indigenous knowledge bases by engaging the local communities in the process.11 The exercise is of greater significance in a country like India where a considerable share of the population is engaged in the informal sectors. To monitor and promote grassroots innovation, the Government of India in 2000 established the National Innovation Foundation (NIF) as an autonomous body of the Department of Science and Technology. The foundation aims to drive innovation at the grassroots through documentation, protection of Intellectual Property Rights (IPR) and commercialising innovation and innovative techniques devised by unaided small-scale innovators. The institution was able to file 114 patents in the year 2019-20.”

R&D has played a significant role in the growth of developed countries. The countries that have high per capita R&D expenditure tend to have higher per capita GDP as well.

Innovation in India

In India, R&D investment has been relatively low. In the past few years, R&D investment in the country has declined from 0.8% of the GDP in 2008–09 to 0.7% in 2017-18. This is lower than the other BRICS nations—Brazil spends about 1.2%, Russia about 1.1%, China just above 2%, and South Africa around 0.8%, with the world average being about 1.8%. On the other hand, developed countries like the United States, Sweden, and Switzerland spend about 2.9%, 3.2% and 3.4%. Among all nations, Israel spends the most, 4.5%, of its GDP on R&D.

Dismal private participation in R&D

Besides very low R&D spends, another challenge in India is lack of private participation in the innovation process. About 60% of all R&D spend is incurred by the government against USA 10%, UK 6%, and Israel 1.5%. A major chunk of India’s R&D expenditure is thus on defense and space research; whereas healthcare and manufacturing account for ~13% of public sector R&D spending.

Huge regional disparities

The ability to innovate is dependent on the quality of human capital. It rests on the opportunities in terms of research and development. Lower spending on R&D, and less innovative opportunities may lead people to move from one region to another region - state/ country for better opportunity.

Overall Global Innovation Score for India is a dismal 14.56. Besides, there exist huge regional disparities within the country. Most of the R&D effort in India is concentrated in few states and cities. Some clusters in NCR, Karnataka, Tamil Nadu Maharashtra, Telengana and Gujarat account for a large proportion of overall innovation effort in the country.

Suggestion for improving the innovation rank of India

The report makes the following suggestions for improving the global innovation score of India to aid faster economic growth and development.

1.    GERD needs considerable improvement and should touch at least 2%, which would play an instrumental role in India achieving the goal of a 5 trillion economy and further influence its innovative footprint across the globe.

2.    The role of the private sector in research and development needs to pick up pace.

3.    The expenditure on human capital has been unable to create that knowledge base in the country, which could be due to the intricate reasons of bureaucracy, administration, outreach, etc. It is observed that innovation is skewed against the manufacturing sector. This requires inexorable efforts to overcome challenges and make the best use possible.

4.    India has been able to provide a conducive environment for businesses to thrive, in terms of a business environment, safety, and a legal environment, but we have not been able to support the same in terms of investment and knowledge workers. We need to harness the energy and potential of youth to augment knowledge workforce.

5.    We need to sincerely fill the gap between industry demand and what we produce through our education system.

6.    India needs to undertake efforts in creative goods and services, which have been ignored for a long time.

7.    In India, intangible assets like patents and trademarks filing process are complex and face procedural delays. We need to streamline this.

8.    Our states and Union Territories need to break silos and start working in tandem, as no state/UT can thrive alone endlessly without taking care of its peers.

 In the past 3months, the NITI Aayog has published two important reports regarding electric mobility in India. The first report presents a blueprint for inclusion of electric vehicles (EVs) in priority sector lending to stimulate the demand for EVs. The second report, emphasises on the need for advanced chemistry cell energy storage in India. These two are inarguably amongst the primary considerations to promote faster and wider adoption of clean fuel operated mobility solutions in the country.

It is pertinent to note in this context that India has committed to the global community that by the year 2030, the share of electric vehicles in the total vehicles sold in India would be 30% (EV30@30).

The key highlights of the NITI Aayog’s reports are as follows:

Facilitating easy and adequate credit for EVs

·         Cumulative investment in India’s electric vehicle (EV) transition could be as large as INR 19.7 lakh crore ($US266 billion) between 2020 and 2030. There is a need for higher liquidity and lower cost of capital for EV assets and infrastructure.

·         Given the nascency of EV technology and adoption, FIs such as banks and non-banking finance companies (NBFCs) are not lending to EVs due to associated asset and business model risks (see Exhibit 3). These risks are both real (e.g., uncertainty of resale value) and perceived (e.g., product quality). As a result, if financing is available, EV buyers are unable to obtain terms (i.e., interest rates and tenures) that are comparable to ICE vehicles. Governments across the world are recognising this challenge and are introducing supportive measures to facilitate easier financing of EVs.

·         Off-grid solar and off-grid renewable energy solutions for households were included within PSL guidelines in 2012.21 In 2015, renewable energy was included as a priority sector. This widened the scope of lending to larger installations and renewable energy-based public utilities.

·         Including EVs in the Reserve Bank of India’s priority sector lending (PSL) guidelines can complement the $US300 million facility and encourage the financial sector to mobilise necessary capital. It can ensure a swift and equitable transition to EVs.

·         The economic case for promoting the adoption of Electric two- and three-wheelers, as well as four wheelers in commercial use cases is compelling. Easy and cheaper formal credit is desirable for higher rate of adoption in rural areas, especially due to high employment creation potential.

·         While inclusion of EV credit in priority sector lending mandate is promising, additional policy and market measures would be required to address other challenges, which include state level fiscal incentives, open data on vehicle performance, industry-led buyback programmes, and loan guarantee facilities.

·         NBFCs will be important to expanding financing for EVs due to several factors. First, the vehicle finance market share of NBFCs has been increasing over the past five years. However, NBFCs have been facing a liquidity crunch since 2017 that has been worsened by the effects of COVID-19. This may translate to EV-first NBFCs struggling to access low-cost finance from banks. The PSL guidelines allow for co-origination of loans to the priority sector between banks and NBFCs. Both entities thus share risks and rewards.

Developing an advanced energy storage ecosystem

·         At the COP26 summit, India committed an ambitious target of 500 GW of non-fossil fuel-based energy generation in India by 2030 and reduction in the total projected carbon emissions by 1 billion tonnes by 2030. Obviously, to meet these targets India needs a significant amount of grid storage and a large increase in the number of electric vehicles (EVs). This requires stepping up local manufacturing, exploring new avenues, and allowing global competition in the energy storage business.

·         A matured domestic battery manufacturing ecosystem is expected to create competitive advantages and contribute to India’s energy security. This will require a combination of demand and supply-side measures.

·         The annual market for stationary and mobile batteries in India could surpass US$15 billion by 2030, with almost US$12 billion from cells and US$3 billion from pack assembly and integration, under the accelerated case scenario. Even under a more conservative case it amounts to an annual market of US$ 6 billion.

·         Currently, India has a negligible presence in the global supply chain for manufacturing of advanced cell technologies. Advanced batteries are a cornerstone technology, and their manufacturing within India could allow domestically sourced batteries to cater to the demand generated from EVs, grid storage applications, consumer electronics, and other uses. It is an opportune time for India to step forward and support the development of a domestic battery manufacturing ecosystem that meets its future energy storage market needs and helps reduce its dependence on imports to meet the future advanced energy economy demands.

·         In the accelerated scenario, battery demand is expected to rise to 260 GWh by 2030. This would require nearly 26 gigafactories with an average advanced battery production capacity of 10 GWh per year. The conservative scenario battery demand would require 10 gigafactories by 2030. Since India has no manufacturing plants at this scale now, developing and rapidly scaling its advanced battery manufacturing industry is expected to require focused and coordinated public-private actions.

·         Batteries currently account for 25%–50% of the total cost of an EV depending on range and performance. While battery costs are declining rapidly, the battery will remain a critical component of the EV supply chain.

·         For grid operators, energy storage systems can provide a suite of ancillary services that supports the reliable and efficient operation of the electricity grid. Renewable resources such as wind and solar can fluctuate in output both at the daily scale and the seasonal temporal scale. Seasonal storage is required at very high levels of renewable penetration to store large amounts of energy for weeks to months to bridge the gap between seasonally variable renewable energy output.

·         The mobile and electronics industry in India is fast growing and diverse with a significant reliance on high-performance batteries across a wide range of applications. Mobile phones, power banks, IT hardware, telecom devices, smart agriculture, defence electronics, and other portable devices all require high density and safe integrated batteries.