Economic Survey: Cut red tape to fuel growth engine domestically

The Indian economy has to unlock its growth potential from within with globalisation no longer being able to provide a tailwind — that is the central message of the Economic Survey 2024-25, and its first suggestion in this direction is to streamline governing processes through deregulation at every level of governance and allow entrepreneurship to grow. The document termed this “getting out of the way”.

It proposed deregulation to help micro, small and medium enterprises (MSMEs) grow. “Deregulation is about removing the fear of growth in micro, medium and small enterprises. And this is about the plumbing nuts and bolts of deregulation which are primarily there in the state and local government space,” Chief Economic Adviser V Anantha Nageswaran said, explaining the difference between overall deregulation and Union government’s ease of doing business initiatives.

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The Economic Survey said deregulation will reinvigorate the internal engine of growth. “The global economy is now transitioning to a phase where the traditional, fundamental policy levers that were once effective may no longer be applicable or even relevant. Across the world, the focus of policymaking globally has shifted inwards. The promise of shared benefits from a globalised world with open trade, free flow of capital and technology, and sanctity for rules of the game may be behind us. It is as unwelcome and unfortunate as it is real,” it said

The Economic Survey clarified that it was not suggesting that India close itself to the world. “However, given the uncertain global environment and fraught geopolitics, expectations of the external sector’s contribution to our economic growth must be realistic. Therefore, we need to intensify our efforts on the domestic front,” it added.

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The faster economic growth that India needs is only possible if the Union and state governments continue to implement reforms that allow small and medium enterprises to operate efficiently and compete cost-effectively, the Survey said. By reducing excessive regulatory burdens, governments can help businesses become more efficient, reduce costs, and unlock new growth opportunities. Regulations increase the cost of all operational decisions in firms, it added.

Recognising that the government has implemented several policies and initiatives over the last decade to support and promote the growth of MSMEs, the Economic Survey pointed at some challenges in the regulatory environment in the shape of “compliance burden” that has held back formalisation and labour productivity, limited employment growth, choked innovation and depressed growth.

It observed that there is a tendency for firms in India to remain small with the aim being to remain under the regulatory radar and steer clear of the rules, including labour and safety laws. It said the biggest casualties of this are job creation and worker welfare, which, ironically, most regulations were aimed at.

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The Economic Survey 2024-25 outlined a step-wise process for states to systematically review regulations for their cost-effectiveness. The steps included identifying areas for deregulation, thoughtfully comparing the regulations with other states and countries and estimating the cost of each of these regulations on individual enterprises.

The survey highlights that Ease of Doing Business (EoDB) 2.0 should be a state government-led initiative focused on fixing the root causes behind the unease of doing business. It mentioned that in the next phase of EoDB, states must break new ground on liberalising standards and controls, setting legal safeguards for enforcement, reducing tariffs and fees, and applying risk-based regulation.

“The need to find growth avenues in an export-challenged, environment-challenged, energy-challenged, and emissions-challenged world means we need to act on deregulation with a greater sense of urgency. Without deregulation, other policy initiatives will not deliver on their desired goals. By empowering small businesses, enhancing economic freedom, and ensuring a level playing field, governments can help create an environment where growth and innovation are not only possible but inevitable. India’s growth aspirations require nothing less,” it said.