Deregulate to grow: Eco Survey says India needs Ease of Doing Business 2.0

The Economic Survey 2024-25 highlights the need for deregulation to enhance investment efficiency, reduce compliance burdens, and support MSMEs, industrial competitiveness, and job creation

Deregulation will be key to accelerating India’s economic growth, improving business efficiency, and fostering job creation, according to the Economic Survey 2024-25, released on Friday. The report highlighted that regulatory reforms, policy simplifications, and state-level initiatives aimed at reducing compliance costs will be crucial for India’s medium-term economic growth, particularly in boosting MSMEs, industrial competitiveness, and employment generation.

 

India aims to sustain an 8 per cent real gross domestic product (GDP) growth rate over the next decade, which requires both higher investment levels and improved investment efficiency. To achieve this, the Survey states that reducing the regulatory burden will allow investments to generate quicker and higher returns, boosting overall economic productivity.

 

 

Economic freedom and MSME growth

The Centre has already taken steps to achieve this. The Survey pointed out that micro, small, and medium enterprises (MSMEs) bear disproportionately high compliance costs in terms of both time and financial resources. To address this, the government has implemented policy reforms over the past decade to reduce compliance burdens, streamline taxation laws, rationalise labour regulations, and decriminalise business-related laws.

 

Additionally, The Forest Conservation (Amendment) Act, 2023, was enacted to simplify land use regulations, making it easier for businesses to operate.

 

State-level deregulation efforts

Several states have introduced pro-business regulatory reforms to attract investment:

 

Haryana and Tamil Nadu have repeatedly amended building regulations to facilitate industrial expansion.

 

Punjab has conducted grievance redressal sessions to ease compliance with industrial, labour, and fire regulations.

 

Andhra Pradesh, Karnataka, and Haryana have relaxed restrictions on night shifts for women in the IT-enabled services (ITES) sector, improving employment flexibility.

 

State-level intervention is key, as regulations can sometimes hinder business productivity. For instance, Indian states mandate factories with a 10,000 sq. metre plot to forgo 1,164–3,522 sq. metres for setbacks, costing businesses up to Rs 97.5 lakh in lost productive land value and up to 521 jobs in foregone employment opportunities.

 

Another example outlined by the Survey is that many states classify strips of land beside public roads as protected forests, originally intended to preserve tree cover. However, this classification has resulted in businesses spending over 250 days to obtain basic passageway access, leading to excessive delays and compliance burdens.

 

The Survey does not advocate removing these regulations outright but stresses the need for carefully evaluating their deadweight loss and opportunity costs.

 

Challenges of regulatory enforcement

The Survey points out that India often adopts regulatory standards from high-state-capacity nations, even though its administrative capacity remains limited. For instance, India has only 644 working inspectors overseeing 3,21,578 factories, meaning each inspector is responsible for about 500 factories.

 

Unrealistic regulatory standards can result in “premature load-bearing,” where the regulatory burden outweighs the state’s ability to enforce compliance effectively.

 

Reforms to ease business operations

The Survey highlighted key national initiatives aimed at modernising India’s regulatory framework:

• Jan Vishwas Act, 2023: Decriminalised 183 provisions across 42 central laws, reducing legal hurdles for businesses.
• PAN 2.0 Project: Introduced paperless processes and established the Permanent Account Number (PAN) as a common digital identifier to streamline business documentation.
• Business Reform Action Plan (BRAP): Demonstrated a strong correlation between deregulation and increased industrial activity.

 

Job creation

The Survey detailed that over-regulation hampers business expansion and job creation, whereas deregulation would reduce operational costs, enhance efficiency, and encourage growth in key sectors.

 

Labour market reforms have been suggested to introduce greater flexibility in work hours, particularly for export-driven industries. The Survey also notes that India’s factory laws discourage large-scale manufacturing, as running two smaller factories (150 workers each) is often more cost-effective than a single large unit (300 workers) due to compliance complexities. Addressing these issues could boost India’s industrial competitiveness.

 

Global best practices

The Survey highlights international regulatory models that focus on cost-effectiveness and compliance simplification:

 

United Kingdom: The “one-in, two-out” policy mandates that for every new regulatory requirement introduced, two existing ones must be removed.

 

United States and New Zealand: Have adopted streamlined regulatory frameworks to support business growth and job creation.

 

Policy recommendations

To further enhance economic efficiency, the Survey suggests:

 

1. Liberalising standards and compliance procedures to make regulations simpler and more business-friendly.
2. Adopting risk-based regulation where enforcement is proportionate to actual risk levels, reducing unnecessary regulatory burdens.
3. Encouraging public-private partnerships (PPPs) in regulatory enforcement, following models in Australia and Canada.