India has emerged as one of the world’s strongest economic reformers over the past decade, but the market distortions impose a combined economic loss of around $173.6 billion on the Indian economy, according to Competere Foundation. The global trade law and economic policy consultancy estimates that foreign-investment restrictions account for about $127.2 billion of that loss while the competition-policy drift accounts for the remaining $46.4 billion. “These losses fall on India first. They reduce productivity, limit investment, weaken contestability, slow technology diffusion, and reduce the gains available from India’s own domestic reform success,” the report said.
The analysis showed that India has climbed 25 places in the foundation’s anti-competitive market distortions (ACMD) rankings between 2010 and 2023, moving from #82 to #57, which is reflective of progress in reducing regulatory barriers to competition. It has also estimated that reforms undertaken during this period have lowered the country’s long-run GDP per capita loss from market distortions by 11 percentage points, equivalent to roughly an additional 1 percentage point of GDP per capita growth annually.
Drivers of Economic Progress
The biggest gains, as per Competere, has come from reforms such as the roll-out of the goods and services tax (GST), the insolvency and bankruptcy code (IBC), improvements in the ease of doing business and customs digitisation – all of which reduced internal market frictions and improved the overall business environment. However, the report said that the next phase of economic growth will depend on addressing the distortions that continue to restrict competition and investment. For instance, sectoral foreign direct investment (FDI) caps, government approval routes, and restrictions on business models in sectors such as retail, e-commerce, media, defence, banking and aviation continue to pose as barriers that reduce market contestability and investment.
The report is also critical of the proposed digital competition law. Referring to the Digital Competition Bill (DCB), Competere cautioned that a shift from traditional “effects-based” competition enforcement to ex-ante regulation.
“India’s reform journey over the past decade is one of the strongest economic transformation stories anywhere in the world. Looking ahead, our analysis suggests there is significant scope to build on that momentum by continuing to strengthen India’s domestic investment environment while enhancing its competitiveness in international markets,” said Shanker A. Singham, CEO of Competere Group.
Addressing Non-Tariff Barriers
The report also stressed the need to address non-tariff barriers that limit the benefits of free trade agreements (FTAs) and impede global commerce.
“Tariff reductions can improve formal access, but they do not resolve regulatory barriers that operate through sanitary and phytosanitary (SPS) rules, technical barriers to trade (TBT), conformity assessment, pesticide residue limits, sustainability standards, or the EU Carbon Border Adjustment Mechanism,” the report said.