Fiscal Transformation and Inclusive Development: Linking Tax Reforms with Innovation Ecosystems - A Conceptual Study with Special Reference to India

Abstract

This paper critically analyses the interlinkages among tax reforms, innovation, and economic inclusiveness in India. Fiscal systems are no longer just about raising revenues, but about being effective policy instruments to encourage entrepreneurship, technological change and inclusive growth. Reports, working papers, policy briefs, annual publications, statistical databases, research documents and peer-reviewed academic journals published by the Organisation for Economic Co-operation and Development (OECD), International Monetary Fund (IMF), World Bank, NITI Aayog, Reserve Bank of India (RBI), Government of India, Ministry of Finance, Economic Surveys, GST Council reports and others were used for collecting relevant information.

The paper highlights several significant changes in various regimes in India, including the Goods and Services Tax (GST), Digital Tax regime, measures for fiscal support to startups, rationalisation of corporate tax and the Production Linked Incentive (PLI) Schemes, etc, that have affected the country's innovation environment. It simultaneously considers the effect of taxation on inequality, social mobility and economic participation of different groups in India. The results suggest that reforms that focus on innovations have positively affected productivity in addition to inclusive design and institutional capacity. However, compliance expenses to MSMEs (Micro, Small and Medium Enterprises), exclusion due to digitalisation, and indirect taxes, which adversely affect the poor, can threaten inclusive development. The paper concludes that the fiscal governance in India must be sustainable, that is, there must be a balance between incentives to innovation and social justice and equitable access.