January 31, 2025
State-level initiatives, such as relaxed land use norms and labour regulations, are highlighted as essential for attracting investments and enhancing productivity
The report warns that India's limited administrative capacity makes compliance enforcement challenging, requiring more realistic regulatory standards
Key reforms, including the Jan Vishwas Act and PAN 2.0, are helping modernise India's regulatory framework and ease business operations
Global best practices, such as the UK’s “one-in, two-out” policy, are recommended for reducing regulatory burdens and fostering industrial growth
Deregulation will play a pivotal role in accelerating India’s economic growth, enhancing business efficiency, and fostering job creation, according to the Economic Survey 2024-25. The report underscores that simplifying regulations and reducing compliance costs will be crucial for sustaining medium-term economic growth, particularly in boosting the competitiveness of micro, small, and medium enterprises (MSMEs) and generating employment.
The Survey highlights India’s ambition to maintain an 8% real GDP growth rate over the next decade. Achieving this target requires higher investment levels and improved investment efficiency. Streamlining regulations, it argues, will enable faster and higher returns on investments, thereby enhancing economic productivity.
Focus on MSME growth
The Survey notes that MSMEs bear disproportionately high compliance costs in terms of both time and financial resources. In response, the government has undertaken reforms over the past decade, including simplifying taxation laws, rationalising labour regulations, and decriminalising business-related laws. The enactment of the Forest Conservation (Amendment) Act, 2023, further eased land use regulations for businesses.
State-level efforts to attract investment
Several states have taken pro-business steps:
The Survey highlights that excessive regulatory requirements at the state level can stifle business productivity. For instance, setback regulations for large factory plots have led to significant losses in productive land value and employment opportunities. Additionally, classifying land along public roads as protected forests has caused costly delays for businesses seeking access permits.
Challenges in regulatory enforcement
India’s administrative capacity remains limited, with just 644 inspectors overseeing 3,21,578 factories, translating to one inspector for every 500 factories. The Survey warns that unrealistic regulatory standards adopted from high-state-capacity nations often burden the system without effective enforcement.
Ongoing reforms
The government has introduced key initiatives to modernise the regulatory framework:
Encouraging job creation
The Survey underscores the negative impact of over-regulation on business expansion and job creation. Labour market reforms, including greater flexibility in work hours, are essential for export-driven industries. Addressing factory laws that make smaller operations more cost-effective than large-scale manufacturing is critical to boosting competitiveness.
Global best practices and policy recommendations
The Survey draws lessons from international models, including the UK’s “one-in, two-out” rule, which requires removing two existing regulations for every new one introduced. It also highlights risk-based regulation approaches from the United States and New Zealand.
To further enhance economic efficiency, the survey recommends liberalising compliance standards, adopting risk-based regulatory frameworks, encouraging public-private partnerships for enforcement, and following successful models in Australia and Canada.
Source: Business Standard