Editorial 2 : For a Viksit Bharat, India needs to cut down on its regulatory cholesterol
Context
India must slow down spending and public debt growth if we aspire to be good ancestors.
GDP: A comparison with China
- Since 1990, India has seen a dramatic rise in government spending, increasing more than 100 times to ₹107 lakh crore.
- However, during the same period, the growth in citizens' income has been modest, with per capita income rising only eight times to about $2,700.
- In contrast, China’s per capita GDP surged 42 times, largely due to its rapid expansion in manufacturing and strong integration with global trade systems.
- This stark difference highlights the need for India to rethink its development path.
- With global trade becoming more uncertain, partly due to actions like former U.S. President Donald Trump’s trade disruptions and with rising national security needs after Operation Sindoor, India must develop its own model for creating mass prosperity.
- This means focusing on building a strong domestic economy driven by high-productivity jobs, innovation, and efficient use of public spending.
Encouraging, but not controlling
- Indian entrepreneurs often encounter a restrictive mindset from officials, summed up by the question, “Who allowed you to do this?”—a reflection of a “prohibited until permitted” approach that stifles innovation.
- To drive progress, India must adopt a “permitted until prohibited” philosophy, where entrepreneurial activity is encouraged by default and only limited when necessary.
- This outdated control-based system stems from the 1955 Avadi resolution, which placed the government at the "commanding heights" of the economy.
- As a result, it created a web of rules that prevent capital and labour from working efficiently together and burden employers with excessive, often obsolete, regulations that hinder business growth and job creation.
The Gender bias and other issues
- Despite progress, gender bias and excessive regulations continue to hold back Indian employers.
- Women are banned from working in 32 operations and 200 sub-processes, including sectors like pottery, cashew-nut processing, and glass manufacturing.
- Employers face 59 additional conditions across states if they want to hire women for night shifts, creating further disincentives.
- Beyond gender, rigid rules also restrict efficient business operations—factories lose up to 50% of land to outdated standards, with small units suffering the most.
- Working hour restrictions prevent factory workers from earning over 270 hours' worth of income annually, making them less productive than their counterparts in countries like Japan.
- Building a single 300-worker factory is 40–80% more land-intensive than two 150-worker factories.
- These rules not only reinforce gender inequality but also make job creation and industrial growth unnecessarily difficult.
Deregulation is the key
- India’s complex web of laws, compliances, and criminal provisions for employers reflects what economist F.A. Hayek called the “pretence of knowledge” in his 1974 Nobel speech.
- He warned against treating the economy like a machine that can be precisely controlled, stressing that economic systems are driven by individual actions and are too complex for any one authority to fully understand or manage.
- To achieve the goal of Viksit Bharat by 2047, India must embrace deregulation and trust in the creativity and decisions of its people.
Deregulation with Balance
- Deregulation doesn’t mean slashing government spending, giving employers complete freedom, or cutting public jobs.
- A modern welfare state must invest in social security, infrastructure, and defence to ensure shared prosperity.
- Effective markets still need strong laws for consumer protection and correcting failures, but excessive regulation becomes harmful—like a medicine in the wrong dose.
- Government manpower should focus on core services like law and order, healthcare, education, and municipal work.
- Reform must be thoughtful, not disruptive, as lasting change comes from precise action, not heavy-handed measures.
- Aligning the roles of society (samaaj), markets (bazaar), and the state (sarkar) requires cooperation, not conflict.
- Targeting the wealthy may reduce inequality on paper, but only large-scale, high-wage job creation can lift the poor.
- India’s challenges demand more than small tweaks—they require major reforms in compliance, filing, and criminal provisions, which now amount to civil service reform.
Conclusion
Every Indian policymaker’s goal has remained unchanged since 1947: Mass prosperity. However, delivering on that goal requires a change in strategy i.e. signalling that entrepreneurship is permitted until prohibited by culling the regulatory cholesterol holding India back.