In order to grow at 8% every year for at least a decade, and to enhance output and productivity of firms, specially MSMEs, deregulation has to be amplified, said the Economic Survey. The focus of reforms and economic policy must now be on “systematic deregulation”, it said.
The need to find growth avenues in an “export-challenged, environment-challenged, energy-challenged, and emissions-challenged” world means we need to act on deregulation with a greater sense of urgency, said the survey. “The focus on domestic growth levers is not an option but a compulsion.”
The survey said that given their economic capacity, Indian firms cannot adhere to applicable regulations without jeopardising growth opportunities and hurting investments and job creation. For instance, if there is a surge in orders during specific months in the year, exporting firms should have the flexibility to deploy more labour hours and lower them during lean seasons. “This flexibility is needed,” the survey said.
Moreover, an Indian factory owner with a 5,000-square meter plot can be required to forgo up to 69% of their plot to comply with building standards. This tract of lost land can cost up to Rs 1.58 crore and could have been used to create up to 509 additional jobs, the survey highlighted.
The faster economic growth that India needs is only possible if the union and state governments continue to implement reforms that allow small and medium enterprises to operate efficiently and compete cost-effectively, it said. “Ease of Doing Business (EoDB) 2.0 should be a state government-led initiative focused on fixing the root causes behind the unease of doing business.”
The survey noted that states can undertake regulatory-linked reforms in areas of administration, land, building & construction, labour, utilities, transport, logistics, environment among others.
Complementing the efforts of the Centre, states must pursue systematic deregulation as a policy priority so that economic freedom of factors of production is augmented, the survey noted.
States can begin the deregulation exercise by identifying regulations that affect decision-making in enterprises, and afterwards compare their regulations on these issues with those in other states and countries. Finally, after identifying alternatives, states must examine the economic impact of their current regulation on a single sample enterprise, the survey said.
The survey also recognised that the government has implemented several policies and initiatives over the last decade to support and promote the growth of MSMEs, but added that “some challenges in the regulatory environment remain”.
It observed the tendency for firms in India to remain small and the logic for it often is to be under the regulatory radar and steer clear of the rules and labour and safety laws, adding that the biggest casualties of this are employment generation and labour welfare, which most regulations were originally designed to encourage and protect, respectively.
Rishi Shah, partner & economist, Grant Thornton Bharat, said: “Indian industry is ready for EODB 2.0, where deregulation moves beyond simplification to true economic freedom. By reducing compliance burdens and shifting from micromanagement to trust-based governance, EODB 2.0 can unleash private sector dynamism, attract investment, and accelerate job creation.”