Deregulation is increasingly becoming a key strategy for economies worldwide, as they seek to wriggle out of persistently low growth. The need to do away with fragmented regulations has taken added importance in a de-globalising world, India included. Mature economies are facing resource constraints and are left with few structural options to invigorate demand or create jobs or boost incomes. Avoidance of regulatory excesses and bureaucratic rent-seeking is therefore a potent tool at their disposal to ensure that innovation and animal spirits aren’t artificially constricted.
For emerging market economies like India, careful deregulation should, however, co-exist with structural reforms that are still an unfinished agenda for them. Reports suggest that multiple countries have created ample wriggle room even on implementing “Basel III Endgame”, the latest version of banks’ capital adequacy framework. The overriding goal of getting growth back seems to outweigh other factors. While the situation is understandable, caution cannot be thrown to the wind either. India’s policymakers and regulators are acutely aware of the need to unshackle the industries and financial-sector participants from redundant regulations, and make their lives easier.
Decriminalisation and the MSME Empowerment Project
As for the real economy, the four Labour Codes, which supplanted the 29 archaic laws and the complex patchwork of their amendments at the federal and state levels, are a big step forward. The process of making taxation regime simpler and tax rates benign too has made much headway. Digital pathways for transfer of government funds to the beneficiaries have had both fiscal and human benefits. Most of the minor economic offences and lapses have been decriminalised. Micro, small, and medium enterprises have lately been placed at the centre of the deregulation project, with faster refunds, easier registration, greater access to bank capital, and relaxations in quality control orders, etc. Enablement of start-ups has turned smoother by the day.
In the financial sector, a clutch of deregulation announcements has been made by both the Reserve Bank of India (RBI) and the Securities and Exchange Board of India in recent months. These include quicker listing, easier overseas borrowing norms, opening up of the markets to foreign funds, and greater leeway for banks to finance mergers. While both the regulators have been vocal about the need for further deregulation, reports suggest that given the flight of foreign portfolio capital, the government is “doubling down on financial sector reforms in a push to beef up capital buffers and lift investment in the country”. In fact, to take the deregulation mandate to its logical end, the Prime Minister announced the formation of a Deregulation Committee in early 2025.
Navigating ‘Regulatory Cholesterol’ and Global Benchmarks
Even before the regulators started moving faster to make themselves more unobtrusive, Chief Economic Adviser (CEA) Anantha Nageswaran had underlined the need for increased transparency in their decisions. He wanted the regulators to be mindful of the boundaries of their “unelected power”. The CEA was particularly concerned about the potential fallout of excessive regulatory zeal on innovation. For instance, he said an assessment of socio-economic costs and benefits of crypto/bitcoin and online gaming could help redefine the way they are regulated. The RBI once had a markedly adverse view of the crypto sector. While the so-called regulatory cholesterol should doubtless reduce, regulators’ ability to perform their mandate is vital for stable progress of an economy like India’s. Many regulators lack the required functional autonomy or teeth, one reason why market concentrations and oligopolies exist. Influential segments of business must not be allowed to scuttle regulatory actions that are aimed at fair play.