India's Regulatory Framework: Challenges and Reforms

Addressing India's complex regulatory framework is an ongoing challenge, hindered by bureaucratic inertia and outdated practices. The recent budget proposal for a high-level committee (HLC) on regulatory reforms highlights the need for substantial changes. This committee is expected to submit its recommendations within a year.

Key Areas for Reform

• Addressing Ambiguities
  • Clarify laws and regulations to reduce confusion.
• Curbing Bureaucratic Power
  • Limit discretionary powers that lead to exploitation and inefficiency.
• Reforming the Bureaucracy
  • Promote honesty and result-oriented approaches.
  • Implement fixed tenures for stability in positions.
• Dispute Resolution
  • Develop efficient alternatives to alleviate court burdens.
• Accountability
  • Establish consequences for erring civil servants to set a precedent.

Political Implications

The success of these reforms also depends on the political class, which must avoid rent-seeking behaviors. The HLC itself should be diverse, with leadership from notable non-bureaucrats like Nandan Nilekani. The committee faces the challenge of a lack of institutional memory, as seen in past initiatives like the 2018 BRAG report.

Regulatory Burden on Businesses

• Excessive compliance requirements and criminal provisions disproportionately affect small businesses.
• Introduce mandatory sunset clauses for laws and regulations to ensure periodic review and relevance.
• Engage in wide public consultations to avoid stalemates, as seen in farm sector reforms.

Streamlining Regulations

• Implement automatic expiry dates to improve systemic efficiency.
• Utilize the World Bank’s 2024 Business Ready (B-Ready) report for consistency.
• Regulatory Impact Assessment (RIA)
  • Institutionalize RIA to evaluate legality, necessity, and proportionality of regulations.
  • Create cross-sectoral RIA bodies at government levels to balance public interest and economic growth.

Improving Compliance and Enforcement

• Develop a tiered compliance framework focusing on risk-based inspections.
• Employ AI and data analytics for targeted oversight of high-risk entities.
• Adopt collaborative approaches like Punjab's 'compliance clinics' to reduce bureaucratic burdens.

Transitioning from Punitive Regulations

Amend laws to remove criminal punishments for non-fraudulent or non-dangerous breaches, aligning with global norms. This encourages compliance through proportionality, viewing regulations as supportive rather than obstructive.

Conclusion: Toward Dynamic Governance

The HLC should advocate for dynamic regulatory bodies at the state and Union levels to adapt to economic and technological changes. By embracing a 'less government, better governance' philosophy, India can attract more private investment and foster innovation, ultimately reducing regulatory constraints and promoting business growth.