Cutting red tape: Deregulation panel must conduct a broad assessment

Prime Minister Narendra Modi has reiterated his government’s commitment to creating a “deregulation commission”, meant to prune existing rules and create a new and more investment-friendly ecosystem. The removal of onerous regulations was also the thrust of the Economic Survey, tabled in Parliament a few weeks ago, and this policy thrust was also signalled in the Union Budget. What matters now is how deep, comprehensive, and sustained the work of deregulation will be. Already, a so-called “Jan Vishwas” Bill has been passed and that decriminalises some civil offences. Another one has been promised to reportedly remove criminal punishment for about another 100 minor offences, replacing them with civil penalties. These are important steps forward. But they do not so far consist of a shift in approach so much as pruning the most excessive and punitive aspects of an oppressive state machinery that has been built up over decades.

 

The government must direct the new commission to conduct a wide-ranging assessment of all existing regulations. They should be evaluated along multiple axes. First, whether the purpose for which they were introduced is still relevant. Second, whether they have demonstrated efficacy in achieving that purpose. And third, the costs they have imposed upon citizens, entrepreneurs, and investors. The costs must then be balanced against the benefits if the regulation is to persist. Ideally, such an exercise would be transparently conducted before regulations are brought in. But it rarely has been, whether by the government or by independent regulators. This is hardly good practice and contrasts sharply with all other liberal democracies, even highly regulated European ones. The absence of conducting public risk-and-reward assessments of policy changes and rule-making does not reflect an overall policy framework so much as a broad attitude that assigns greater power to bureaucracy. It is this approach that a deregulation commission must break away from. To that end, the staffing of any commission will be a vital choice. It must not be composed simply of retired officials who share the very approach that deregulation must correct.

 

Whatever the cost of any single regulation might appear to be, its true cost is undoubtedly higher when it is part of an entire thicket of laws and prohibitions that reflects this statist approach. The whole is greater than the sum of the parts; it is the byzantine and internally contradictory state of India’s regulatory apparatus that more than anything else acts to dampen investors’ enthusiasm and reduce their appetite for deploying fresh capital in regulated sectors. It is no surprise that manufacturing, for example, sees far less excitement than online retail or the app economy — even if the former is a government priority, the latter has a far less intrusive regulatory apparatus. To revive public investment, the government must convince investors that a new deal is being offered to them, and that amounts to a concrete break from the past. It will be important that all states also cooperate in this mission of making India an investor-friendly destination. In the decade and more that this administration has been in power in New Delhi, it has sought time and again — with the best of motives — to demonstrate that it prioritises a business-friendly policy environment. Deregulation, if carried out right, will go some way to fulfilling those commitments.