India needs regulatory reforms to boost growth

Source: The post India needs regulatory reforms to boost growth has been created, based on the article “The road to regulatory reform” published in “The Hindu” on 8 May 2025. India needs regulatory reforms to boost growth.

UPSC Syllabus Topic: GS Paper3- Growth and Development

Context: India’s services-led growth contrasts with the manufacturing-driven path of most emerging economies. Regulatory pressure has historically targeted manufacturing, but services are now increasingly affected. The 2025 Budget’s focus on deregulation highlights the need to ease business operations and unlock higher, sustained economic growth in the face of global headwinds.

For detailed information on Regulatory Reforms in India read this article here

India’s Growth Paradox

1. Uneven Sectoral Contributions: From 1980 to now, manufacturing’s share in gross value added rose marginally from 16% to 17.5%. Meanwhile, services surged from 33% to 55%.
2. Regulatory Disparity: Manufacturing faced heavier compliance burdens, while services remained lightly regulated. Factories attracted inspection and licensing, unlike software or call centre firms.
3. Increasing Scrutiny of Services: Services now face similar issues. Incidents show how obscure regulations are misused for extortion. Even routine office work triggered police threats under outdated compliance norms.

Urgency for Regulatory Reform

1. Budget Signals a Shift: The Finance Minister proposed a high-level committee to cut red tape. This aligns with broader efforts to enhance ease of doing business.
2. Reducing Regulatory Burden: Self-certification for low-risk activities can replace inspections. States can extend licence validity using India and Southeast Asia’s best practices. Third-party certification can fast-track approvals.
3. Digital Approvals and Transparency: Online systems should list required documents and allow automated approvals. For example, buildings not in flight paths or below a certain height can receive an automatic NOC from the Airports Authority of India based on geotagged location.

Accommodating the Gig Economy

1. Recognising Gig Work’s Role: Gig work is integral to India’s workforce. Labour laws must adapt to this shift without enforcing rigid norms.
2. Balanced Regulation: Efforts to treat gig workers as full-time staff may backfire. Laws should protect dignity while supporting business growth.
3. From Distrust to Trust: Current regulatory attitudes hinder enterprise. A trust-based approach is essential for inclusive economic progress.

Improving Factor Markets and Labour Laws

1. Land and Labour Flexibility: Industrial land use should be eased by revising acquisition laws, zoning, and byelaws. Labour laws and the Factories Act need a detailed review to eliminate outdated clauses.
2. Checks Against Harassment: A time-bound appeals process should be mandated. Overreach by departments must carry consequences. All inspections should follow a standard checklist with prior notice.
3. Shift in Bureaucratic Culture: Growth-enabling performance should become part of departmental evaluations to reduce obstructionist attitudes.

Toward a Developed India by 2047

1. Repeating the 1991 Reform Success: India’s 1991 macroeconomic reforms proved transformative. Now, the country must pursue microeconomic reforms to meet the goal of becoming a developed nation by 2047.
2. Domestic Reforms Amid Global Headwinds:While global trade wars pose external challenges, India can strengthen its domestic economy by removing regulatory bottlenecks — an internal lever firmly within its grasp.

Question for practice:

Examine how India’s regulatory framework affects its services-led growth and what reforms are necessary to support sustained economic expansion.