Deregulation in focus, the bet is on entrepreneurs

Deregulation in focus, the bet is on entrepreneurs

Why in the News?

• The deregulation reforms aim to free Indian industry from unnecessary, time-consuming, and complex regulatory procedures.
• It seeks to promote a trust-based regulatory framework instead of excessive compliance burdens.
• The initiative is designed to prepare India for the Free Trade Agreements (FTAs) currently under negotiation.
• It aims to strengthen India’s industrial base so that domestic industries can access newly opened global markets.
• The reform also seeks to enhance the competitiveness of Indian industries to protect their position in the domestic market against foreign competition.

Call for Deregulation Reform

• Narendra Modi, in his Independence Day speech, emphasized a new wave of reforms focused on deregulation.
• Over time, the channels of enterprise in India have become rigid and inefficient.
• The business environment is burdened by a complex web of rules, approvals, registrations, inspections, and renewals, including environmental clearances, coastal regulation zone permissions, and various sector-specific compliance requirements.
• This has created a “structural tax” on entrepreneurship, discouraging innovation and business growth.

Historical Evolution: From State Control to Licence Raj

• At Independence, India adopted universal adult franchise and a state-led industrialisation model.
• The State controlled the “commanding heights” of the economy, leading to the emergence of the Licence Raj.
• Between 1960–1991:

○     Businesses required government approval for production, capacity expansion, and product lines.

○     Excessive controls restricted private enterprise and competition.

• The system resulted in a protected domestic market, where industries often produced low-quality goods without competitive pressure.

Weak Export Orientation and Its Consequences

• Unlike countries such as Japan, Germany, South Korea, China, and Vietnam:

○     India did not develop a strong export-oriented industrial strategy.

• Successful economies grew by:

○        Competing in global markets (especially the U.S.)

○     Continuously improving price competitiveness and product quality

• India remained largely domestic consumption-driven, limiting global competitiveness.

Post-1991 Reforms and Continuing Challenges

• The 1991 Economic Reforms:

○        Removed major distortions

○        Reduced tariffs and deregulated prices

• However:

○     Failed to create a strong export ecosystem

○     Infrastructure remained weak and inadequate

○     India continued to be a relatively protected economy

• Post-2014 developments:

○     Massive infrastructure expansion (roads, airports, ports, housing, railways)

○     Improved capacity for global competitiveness

• Despite progress, India still faces high regulation and protectionism, indicating the need for further deregulation reforms.

Need for Reform in a Changing Global Environment

• The emerging transactional geopolitical order requires Indian industries to become globally competitive.
• India’s ongoing FTAs with United Kingdom, Australia, United Arab Emirates, and the European Union demand stronger industrial competitiveness.
• The vision of “Atmanirbhar Bharat” is not about economic isolation but about building the strength to compete and capture market share globally.
• Self-reliance is presented as economic strength and competitiveness, not protectionism or insulation.

Institutional Mechanism for Deregulation Reforms

• Three major committees have been constituted to advance reforms:

○     Two committees focused on deregulation reforms

○     One committee focused on developing ideas for Viksit Bharat

• These committees are led by Rajiv Gauba and the Cabinet Secretary.
• The deregulation exercise reflects the government’s attempt to undertake large-scale structural reforms.

Consultative and Reform-Oriented Approach

• The reform process involved extensive stakeholder consultation:

○     More than 500 stakeholders consulted across sectors

○        Engagement with ministries and regulatory bodies such as Food Safety and Standards Authority of India, Bureau of Indian Standards, and authorities responsible for environmental impact assessment and EIA notification compliance

○     Over 1,000 reform recommendations received

• The reform approach focuses on questioning the necessity and efficiency of regulations by examining:

○        Need for licences, approvals, and registrations

○        Cost and complexity of compliance

○        Time taken for approvals

○        Standardisation of procedures

○        Validity and renewal requirements

○        Penalties and criminal provisions attached to regulations

• This marks a shift toward a simplified, rationalised, and trust-based regulatory framework, moving away from practices like ex post facto or retrospective environmental clearances that have created uncertainty in environmental jurisprudence.

Reforms for MSMEs and Ease of Doing Business

• Several measures have been introduced to reduce compliance burdens on MSMEs:
  • Investment threshold for small companies increased to ₹100 crore
  • Around 10,000 companies benefited from reduced compliance requirements
  • Exemption from Corporate Social Responsibility (CSR) obligations for eligible firms
  • Simplification of compliance procedures
  • Introduction of perpetual validity for consent to operate, removing repeated renewal requirements
• These measures are expected to save nearly 600,000 man-hours of compliance effort and improve the ease of doing business.

Jan Vishwas Act 2.0 and Trust-Based Regulation

• After consultations with 34 ministries and departments, the Jan Vishwas Act 2.0 was expanded to cover 717 provisions.
• The reform decriminalises 1,018 offences, promoting a trust-based regulatory and supervisory framework.
• The objective is to reduce excessive criminalisation of business-related compliance violations and improve the ease of doing business.

Sector-Specific Deregulation Measures

• Reforms in Food Safety and Standards Authority of India include:
  • Raising the registration threshold for businesses
  • Introducing automatic registrations
  • Increasing turnover limits for state and central licences
  • Enabling perpetual licences for food business operators through annual payments
• In the pharmaceutical sector:
  • Manufacturing licences for testing and analysis have been replaced with simple notifications to Central Drugs Standard Control Organisation
  • Parallel processing of lab testing and clinical trials has been permitted to reduce delays
• Corporate and Industrial Reforms
  • Amendments to the Companies Act aim to reduce compliance burdens on startups and new businesses.
  • Key measures include:
    • Faster mergers by reducing shareholder approval requirements from 90% to 75% of those present and voting
    • Simplified Director KYC procedures
  • To strengthen manufacturing competitiveness:
    • Quality Control Orders (QCOs) were removed for key inputs in labour-intensive sectors such as textiles
    • Deregulation extended to raw materials and intermediates including fibres, yarns, plastics, polymers, base metals, solder wire, aluminium, and alloys
  • These steps aim to reduce production costs caused by tariffs and regulatory barriers on raw materials.

Strategic Objective: Global Competitiveness through Deregulation

• The reforms seek to prepare India for upcoming FTAs and build a globally competitive industrial base.
• The goal is to enable Indian industries to:
  • Access newly opened international markets
  • Compete effectively against foreign firms in the domestic market
• The reform philosophy is based on trust-based regulation rather than excessive state control.
• Deregulation aims to remove unnecessary, complex, and time-consuming compliance burdens on businesses.
• The broader vision is that Indian entrepreneurs possess the talent, ambition, and resilience needed for success, but require a level playing field free from regulatory friction.
• Deregulation is thus projected as the next major phase of economic reform in India.

Way Forward

• Strengthen trust-based governance: Shift from excessive inspections and approvals to self-certification, risk-based regulation, and digital compliance systems.
• Rationalise and simplify regulations: Remove outdated laws, reduce overlapping compliances, and create a single-window clearance mechanism for businesses.
• Promote export competitiveness: Align domestic regulations and standards with global benchmarks to help Indian industries compete effectively in international markets.
• Ensure stable and predictable policies: Provide regulatory certainty and policy consistency to encourage long-term investment and industrial expansion.
• Enhance ease of doing business for MSMEs: Reduce compliance costs, simplify taxation and licensing procedures, and improve access to finance and technology.
• Deepen infrastructure and logistics reforms: Continue improving transport, ports, energy, and digital infrastructure to reduce production and transaction costs.
• Encourage innovation and entrepreneurship: Support startups through simplified corporate regulations, research incentives, and easier market access.
• Strengthen institutional coordination: Improve coordination among ministries, regulators, and states for faster implementation of reforms.
• Balance deregulation with accountability: Ensure that deregulation does not weaken labour rights, consumer protection, environmental safeguards, or product quality standards.
• Build global value chain integration: Use FTAs strategically to integrate Indian industries into global supply chains and expand export-oriented manufacturing.

Source: https://www.hindustantimes.com/opinion/deregulation-in-focus-the-bet-is-on-entrepreneurs-101777043010302.html

Mains question (250 words)

“Deregulation is emerging as the next generation of economic reforms in India.” Examine its significance for global competitiveness and India’s preparedness for Free Trade Agreements.