State of Indian Economy in 2025
The Indian economy in 2025 faced significant regulatory challenges across various sectors, from civil aviation to public health. The Indian state's regulatory arm, characterized by “statutory regulatory authorities” (SRAs), has been marred by issues such as excessive central planning, insufficient rule of law, and low state capability, thus hindering private investment.
Issues in Civil Aviation
- Incidents such as the crew mismanagement by IndiGo and a tragic plane crash in Ahmedabad highlighted the weaknesses of the Directorate General of Civil Aviation (DGCA).
- These issues stem from the DGCA's lack of administrative autonomy and capacity, compromising air safety oversight.
Challenges Beyond Aviation
- Public health concerns were raised with cough syrup-related deaths, implicating the Central Drugs Standard Control Organisation (CDSCO).
- In finance, non-banking financial companies (NBFCs) and cooperative banks faced governance failures.
- The digital sector struggled with data breaches, digital fraud, and quality of service issues.
Common Regulatory Challenges
India faces pervasive interventionist regulation without adequate understanding of effective implementation. There's a need for foundational change rather than minor adjustments in regulatory outputs.
Market Failure and Regulation
- Information Asymmetry: Consumers rely on regulators to ensure safety and standards in various sectors.
- Negative Externalities: Failures like plane crashes or financial collapses affect society as a whole, necessitating preventive regulation.
Essential Features for Effective SRAs
- Empowerment: SRAs require a legislative mandate, resources, and capabilities for effective regulation.
- Arm’s-length Status: Independence from executive government is crucial for unbiased regulation.
- Consumer Protection Focus: Regulations should prioritize public welfare over industry promotion.
- Accountability: SRAs should be accountable to the legislature while maintaining independence.
- Checks and Balances: Legislation should ensure limited power and demand high-quality processes within SRAs.
Current State of SRAs in India
India has nearly two dozen SRAs at the Union level, covering sectors like finance, energy, telecom, and competition. However, most lack the full set of essential features, resulting in suboptimal performance and government dissatisfaction.
Path Forward for Regulatory Reforms
While advanced economies have developed effective state capability, India's unique conditions require a tailored approach to regulatory reforms. This involves developing a regulatory reforms community, engaging in debates, conducting experiments, and utilizing feedback loops to improve SRAs.The priority is to enhance the Indian regulatory state's functionality to support private-sector growth.
