The Deregulation We Need
(Source: Editorial Page, The Indian Express)
| Topic: GS3: Indian Economy, Regulatory Reforms, Ease of Doing Business, Employment Generation |
| Context |
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Overregulation: A Legacy Challenge:
- India’s regulatory framework has evolved from a license-quota-permit raj into a highly fragmented system marked by duplication, ambiguity, and over-compliance.
- The lack of coherent simplification has made deregulation in India a national necessity, not a policy choice.
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Example: A factory worker in India works for 300 hours more annually than one in China but produces significantly less, pointing to low productivity and poor formalization.
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Multiple ministries and state agencies govern the same economic sectors, resulting in policy paralysis, regulatory friction, and inefficiency.
Labour Market Rigidities and Compliance Overload
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Over 150+ labor laws exist across central and state levels, with complex provisions on inspections, paperwork, and reporting.
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This leads to:
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Avoidance of formal hiring.
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Rise of informal/unregistered firms.
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Reluctance among MSMEs to expand and create jobs.
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- This calls for immediate and targeted labour market reforms in India to boost formal employment and enhance labour productivity.
The Cost of Regulatory Cholesterol
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High compliance costs and unclear legal frameworks deter investment and hamper entrepreneurship.
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Sectors like education, agriculture, and retail are overly regulated, stifling innovation and scale.
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Global comparisons show that despite India’s growth in GDP, its performance in job creation, formalization, and productivity remains stagnant.
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Impact of Overregulation on Economic Performance:
| Sector | Regulation Challenge | Economic Impact |
|---|---|---|
| MSMEs | Labour laws, tax compliance burden | Inhibits expansion and formal hiring |
| Manufacturing | Multiple inspectors, licenses | High entry barriers, poor ease of doing business |
| Education/EdTech | Overlapping state/central norms | Slows innovation and digitization |
| Labour Sector | Rigid rules on hiring/firing | Preference for contractual/informal employment |
| Retail | License-heavy model and FDI restrictions | Suppresses scale and organized retail penetration |
Also Read: The Indian Express Editorial 30 May 2025
Why Deregulation in India is Urgently Needed:
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India is seeking to become a $5 trillion economy and global manufacturing hub.
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Regulatory reforms will:
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Reduce cost of doing business.
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Improve formal sector employment.
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Foster innovation and competition.
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The National Council for Applied Economic Research (NCAER) and Economic Survey have repeatedly called for rationalizing India’s regulatory architecture.
Current Reform Efforts
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Labour Codes (4 Codes) were introduced to consolidate 44 laws but are yet to be fully implemented across all states.
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Government initiatives like:
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Ease of Doing Business Rankings
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PM Gati Shakti
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Digital India for paperless compliance
aim to address these gaps, but execution remains patchy.
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Way Forward/Recommendation
Implement Labour Codes Across All States
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Standardize rules, enable flexibility in hiring, and encourage formal employment.
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Sunset Clause for Old Laws
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Review and repeal obsolete, overlapping, or redundant laws across sectors.
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Digital Regulatory Platforms
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Enable single-window clearances, real-time reporting, and paperless compliance.
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Decentralization with Accountability
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Empower states with regulatory flexibility, but tie it to performance on outcomes.
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Sector-Specific Deregulation
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Agriculture: Remove input/output restrictions.
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Education: Ease entry for quality private institutions.
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Retail: Simplify FDI rules and internal licensing
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| Practice Question: Despite its economic growth, India suffers from a regulatory overload that impedes productivity and job creation. Critically examine the need for deregulation and suggest a roadmap for reforming India’s regulatory ecosystem. (15 marks, 250 words) |
