By Pradeep S. Mehta and Tasmita Sengupta
In 1991, India embarked on major economic policy reforms in the face of a financial crisis. Today, tariff bombs lobbed by the US administration under Donald Trump have led to a chorus demanding reforms so that Indian businesses can cope with trade adversity. Prime Minister Narendra Modi spoke about launching an arsenal of reforms, which is what we need if we are to pull up our socks and prosper.
A 100-day roadmap for next-generation reforms was also announced, aimed at strengthening India’s regulatory framework and boosting investor confidence: an initiative that is both timely and welcome. Central to this vision is a pilot rollout model inspired by the ‘flying geese’ model of growth, with Maharashtra, Gujarat, Tamil Nadu, Delhi and Karnataka serving as testing grounds.
In addition, a Deregulation Task Force has been constituted to drive state-level initiatives. This is complemented by two high-powered groups of secretaries, technocrats and economists that will focus on advancing Viksit Bharat goals and non-financial sector regulatory reforms.
Evidence shows high-growth states consistently share high-growth attributes, such as a sustainably favourable business environment. The choice of those states for a pilot rollout thus appears logical, not only because they consistently attract high levels of foreign direct investment (FDI), possess strong industrial bases and have reformist track records, but their ecosystem is proactive.
Moreover, testing reforms in front-runner states shall reduce the risk of policy-failure spillovers. If successful, however, these reforms would have a demonstration effect on other states and could be adopted across India.
This is a sandbox approach, like China’s experiment with Shenzhen, which was its first special economic zone (SEZ), designed to test market-oriented policies before expanding them.
While India’s central government pushes for deregulation, the efficacy of the exercise will depend on what exactly is envisaged. Unfortunately, the framework it is following remains uncertain and its working groups lack transparency.
Given the quasi federal nature of India, where states do not follow reforms sequentially but compete parallelly, such a one-size-fits-all approach might not work. Karnataka cannot be compared with Chhattisgarh, nor Gujarat with Jharkhand. Replicating models that are successful in one state might not be successful in other states, given their current position.
States are often driven by competitive rather than cooperative federalism. Thus, the actual challenge lies in striking a balance between the two by ensuring that reforms are not merely replicated but adapted to the specific needs of a state.
An alternative approach could be to pilot reforms in selected districts within each state by following the SEZ or GIFT City model.The main challenge lies in policy implementation at all levels, particularly in our states. There are often trade-offs between administrative, populist and reform oriented mindsets among states.
Most laggard states face frequent bureaucratic transfers and understaffing, which weakens administrative continuity and accountability.The solution lies in making the government smaller by reducing the layers where corruption thrives. The use of digital public infrastructure and private sector involvement can cut down in-person touch points, disempowering rent-seeking nodes.
Under its project titled ‘Benchmarking Business Compliances in Rajasthan with Other States,’ CUTS International has been consulting industry and government stakeholders for insights in support of the state’s deregulation efforts.
Its findings highlight persistent challenges, including bureaucratic complacency, tenure instability, high utility costs, manual procedural touchpoints and difficulties in land acquisition and use conversion, among others. Despite easing labour compliance requirements, such as relaxing restrictions on women working at night, the new labour codes remain unevenly implemented in Rajasthan.
The government could use this opportunity not just to test digital compliance tools, but also to fast-track the long-overdue enforcement of all four labour codes across Indian states; this would substantially reduce the compliance burden.
India’s pilot rollout model can be a good start for next-generation reforms so long as the Centre is mindful of these caveats and laggard states are willing to learn.
The model can have a cascading impact if successful states or regions inspire the rest not to copy-paste reforms, but treat them as a source of learning for contextual adaptation. Importantly, the process should involve adequate stakeholder consultations and a cost-benefit analysis so that gains are maximized and risks minimized.
Regulatory Impact Assessments need to guide the path ahead. These will not only encourage reformers to make space for flexibility in their reform architecture, but also ensure transparency and ownership of reforms. Given the heterogeneity of states, this will offer them breathing room to work on long-term competitiveness.
India could also follow South Korea’s ‘cost-in, cost-out’ rule by eliminating or easing regulations that impose excessive costs each time new rules are introduced or altered under a reform drive. Care needs to be taken that deregulation doesn’t go overboard but achieves optimal settings.
As India aims to become a developed nation by 2047, the current push for deregulation is both timely and necessary amid a fragmented and volatile global environment. While the government lays emphasis on deregulation, many states have started undertaking small targeted reforms.
Delhi has scrapped police approvals for hotels and restaurants, while Odisha has modernized its building bye-laws to improve space utilization. Sustaining this momentum through a well-guided framework and monitoring mechanism will be crucial for achieving targets.
We need accelerated FDI inflows to generate employment opportunities, boost income levels and expand domestic savings, ultimately enhancing the ease of living.
The authors Pradeep S Mehta and Tasmita Sengupta are, respectively, secretary general and senior research associate, CUTS International.
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