A few years ago, the UK tried to correct a fall in ease of doing business rankings, and came up with a unique policy—one-in two-out. For every £1 of regulation that any government department wanted to introduce, it would first need to do away with £2 worth of regulation.
It started with ‘one-in one-out’. Now they are toying with ‘one-in three-out’.
Around £5 billion worth red tape was targeted to find its way to the dustbin in the past five years. UK’s World Bank Ease of Doing Business rankings went up from 11 to 6 (India’s current rank is 130).
How does this work?
At the heart of this is a very simple concept—regulation is expensive. Not just for businesses to follow, but also for governments to enforce. For instance, the food regulator may suddenly decide that every bottle of aerated beverage needs to compulsorily display an additional piece of information. Beverage manufacturers in response will have to not only print new labels for their upcoming stock, but also peel off the ones in their existing inventory (which may be stocked for months), and then repackage them. Since the regulator hadn’t warned them, or even given them a decent modicum of time to introduce the change, there will be wastage. The average customer (who may be blissfully unaware of the revised information on the beverage she just bought) may now have to pay more for the drink. Other compliments and substitutes of that product will have to readjust their pricing and strategies. The regulator would need to increase capacity, or overburden its existing one to inspect if manufacturers have indeed implemented this new regulation. With it comes the cost of prosecution and legal challenges.
So, every piece of regulation has a net monetary value. Calculate this cost. Once costs are quantified, every department will have a balance sheet of sorts on the regulations under its purview. Consider it a ‘sin calculator’, except in rupee terms. Now to bring in Rs x worth new regulation (i.e. commit more sin), it will have to find space by reducing existing regulations worth two times the amount (reduce previous sins). This discipline prevents government departments from being trigger-happy in imposing new regulations, while being oblivious of the bulk already accumulated over the years. The solution to every problem cannot be a new regulation bandaged upon a heap of previous band-aids that may or may not be working.
The beauty of ‘one-in-how-many-ever-out’ is that cutting red tape no longer remains a pet project of one conscientious minister or bureaucrat who decides to yank out the machete at whim. Instead, it becomes an integral part of government culture. Naturally, no department would willingly undertake this kind of deregulation. But it’s not their fault. It’s human psychology.
Every time I take a domestic flight that decides to land at the international terminal in Delhi, I have a mix of amusement and desperation to see a serpentine queue form of domestic flight passengers at the immigration counter. They are all held up by one officer whose sole job is to blindly stamp the boarding passes with maniacal gusto (best of luck if you can’t find yours). Then, just 10 meters away, another officer’s job is to sit idly and again stop passengers to check if their boarding passes are stamped. Both those gentlemen do their jobs with rapt dedication. If they were given a choice, they are more likely to be inclined to change nothing about this system—simply because it gives them a sense of relevance and power. The ability to hold up a file, start a queue, stop a business, impose a fine—all make small bits of bureaucracy very powerful. There is a quote in the Game of Thrones series that goes, “Power … is a shadow on the wall. And a very small man can cast a very long shadow!”
No amount of 100% FDI in any sector can reverse the terror of a local VAT commissioner who has had a bad breakfast. Regulation gives departments and individuals a free voucher of this power. Deregulation would mean that the system will now work just fine without their mood swings. There may be a less sinister motive of a regulator to avoid deregulation. It may simply be scared of the consequences. It may be scared that after relaxing a clause, an accident might occur, or unions may start protesting, or a building may come crashing down. The government doesn’t quite know if the regulations indeed work in the first place, because there is no culture of impact evaluation.
This paranoia has led lot of state governments to still preserve tomes of regulations that date back to the 1950s and 1960s, and instead make ease of doing business all about bunching these myriad clearances under the rug of a ‘single window’. It is, after all, easier to redesign a web page than the regulatory landscape.
For deregulation to work, there needs to be a central body with enough political heft to force departments to make these tough choices. Departments can get easily protective of their turfs unless be commanded from a higher power in the organogram. In the UK, ‘one-in two-out’ effort across government was led by a central committee that had the wholehearted backing of the Prime Minister’s Office. Something similar should be attempted in India, may be a central committee backed by the PMO or a chief minister’s office. Identify key sectors to begin with, and crowd-source suggestions of which red tape to junk. Set up a neat web portal, and a media campaign for stakeholders to comment on. After all, who else better to identify dead wood, than the very businesses that face the brunt of it.
Departments collect these feedbacks, produce a ‘junk’ list of red tape, and send it to that central committee, which then decides if the departments have done enough, or can be challenged to do further. The same committee can assess ‘applications’ for departments to introduce new regulation, and demand of them to make space for these by first reducing existing ones. Every new regulation will have sunset clauses. After a stipulated time, it will die a natural death, unless the department consciously decides to renew it.
Anywhere in the world, the core principles of deregulation have been the same—strong political buy-in, top down dictation, and businesses pitching in. Excess regulation is like flab. The ultimate weight loss package is never about crash dieting. It’s about changing your lifestyle. You start by reducing it, and then try slowly converting it to lean muscle.
The author is a senior economic adviser to a foreign mission, based in New Delhi