Why India must do more to move towards a trust-based governance model

The emphasis on processes over outcomes is rooted in a belief that individuals and businesses cannot act ethically and effectively without strict guidance and supervision. The govt needs to trust more

A key indicator of a developed society is the level of trust the government places in its citizens, businesses and institutions. The trust, or the lack of it, is evident in governmental systems and processes. Developed countries generally exhibit greater governmental trust than developing countries, although this metric is rarely studied.

Mandatory document attestation for any paperwork, a frequently asked requirement, is an example of mistrust. In a paper-based bureaucratic system, this requirement adds significant drudgery and cost, especially for the small and the poor, making every transaction cumbersome. Another example of distrust is the extensive, often irrelevant information sought during applications, based on the presumption that applicants may be hiding something. Multiple layers of oversight also reflect distrust in employees’ ability to perform duties honestly and competently. The emphasis on processes over outcomes is rooted in a belief that individuals cannot act ethically and effectively without strict guidance and supervision.

Trust is not just a healthy practice; it makes economic sense. It’s not about assuming everyone is ethical, but recognising that the cost of ensuring 100 per cent compliance is higher than tolerating a few violators. Trust enhances efficiency, reduces regulatory burdens, and improves societal well-being. Trust-based systems cut down on paperwork, oversight layers, and red tape, lowering administrative costs and allowing governments to invest in growth and innovation. Trust encourages voluntary compliance and calculated risk-taking, fostering innovation and adherence to regulations through a fair and transparent system.

Among the various inheritances from the British, one was the deep-seated distrust embedded in their administrative and governance system. The British colonial administration relied on suspicion and control to suppress local dissent and maintain dominance. This distrust was reflected in their rules and procedures, such as the requirement for attestation by a Gazetted officer, often a Britisher. Since independent India’s rules and procedures were based on British systems, this culture of distrust has not only persisted at both the central and state levels, but it has intensified.

After independence, when Indians took control, they brought with them a mindset shaped by two centuries of colonial rule. Acculturated to distrust, they perpetuated and amplified this mistrust. This legacy led to an environment where procedural compliance often overshadowed genuine outcomes, even at senior leadership and bureaucratic levels. As a result, cumbersome regulatory frameworks, extensive paperwork, and multiple layers of oversight have emerged. These layers include internal and external audits, vigilance cells, anti-corruption bureaus, parliamentary committees, Central Vigilance Commission, Central Bureau of Investigation, Lokpal, Lokayukta, judicial bodies, sectoral regulators, Right to Information Act, and more. These layers, aimed at accountability, reflect deep-seated distrust, in the employees and even in the oversight mechanisms. This distrust has further accentuated the prioritisation of procedures over outcomes.

A significant step towards trust-based governance was the 73rd and 74th Constitutional Amendments of 1992, which decentralised power to local bodies like panchayats and municipalities. Decentralisation exemplifies trust in local officials’ ability to manage resources and make decisions independently. However, the governance culture imbibed by the local bodies was that of distrust seen at central and state levels.

Under the Narendra Modi administration, the government began implementing significant reforms to build trust with its citizens. Affidavits were replaced with self-certification, and many attestations by Gazetted officers or notaries were eliminated. Application forms were streamlined to one page, and the India-stack’s Open API architecture reduced redundant data requests. Over the years, 3,400 legal provisions were decriminalised and over 39,000 compliances were cut. While these changes represent progress, deep-rooted issues remain, requiring ongoing reform and legislative action.

Despite progress with citizens, building trust between the government and the businesses remains a challenge. High-profile scams by some businesses have exacerbated this distrust, leading to a complex and burdensome regulatory environment. Indian businesses, including micro, small and medium enterprises (MSMEs), are subject to numerous compliance requirements under a variety of statutes, including the Companies Act 2013, the Income Tax Act 1961, the Reserve Bank of India guidelines, the Banking Regulation Act 1949, the Foreign Exchange Management Act 1999, the Sebi Act 1992, the Competition Act 2002, the Goods and Services Tax Act 2017, the Industrial Disputes Act 1947, the Employees’ State Insurance Act 1948, the Employees' Provident Funds and Miscellaneous Provisions Act 1952, the Payment of Bonus Act 1965, the Factories Act 1948, the Contract Labour Act 1970, the Child Labour Act 1986, the Maternity Benefit Act 1961, the Payment of Gratuity Act 1972, and the Sexual Harassment of Women at Workplace  Act 2013, among others. Anecdotally, India’s regulatory framework encompasses 1,536 laws with 69,233 compliances across various levels of government, with new requirements being added frequently. 

Building trust between the government and businesses is more challenging than fostering trust with citizens due to several factors. First, there’s a widespread perception of corruption, which complicates trust-building. Second, businesses involve numerous stakeholders with diverse needs, making uniform trust difficult to achieve. Third, not all compliances can be done away with. Some regulatory compliances are essential for societal welfare, necessitating distinction between critical and peripheral requirements, which is complex. Despite these challenges, moving towards a trust-based governance model is crucial.

Transparency is fundamental in bridging the trust gap between governments and businesses. Embracing technology-based governance can facilitate this shift. Digital transactions create an audit trail that discourages unethical behaviour and allows real-time identification of misconduct, reducing the need for extensive regulatory procedures. Besides, to foster a trust-based approach, a comprehensive review of compliance requirements is essential. This review should focus on distinguishing necessary from unnecessary requirements, promote self-certification, simplify processes, and leverage digitisation. Inspections and third-party certifications, wherever possible, should be done away with. Redundant and ambiguous requirements should be eliminated, information already held by government agencies should not be repeatedly requested. Compliance costs should be minimised, and penalties should be swift and effective. Establishing an online facility, supported by artificial intelligence, would enable businesses to readily check and fulfil compliance requirements specific to them.

India has made notable progress in trust-based governance, particularly with citizens. It’s time to extend this trust to businesses.

The writer is distinguished visiting professor, IIT Kanpur, and former defence secretary