Economic Survey: States must lead 'Ease of Doing Business' 2.0

Governments should get out of the way of enterprises and allow them to focus on their core mission, said the Economic Survey for FY25 that was presented in Parliament on Friday, calling for the unshackling of business by cutting through the excessive red tape that stifles industry.

“Business as usual carries a high risk” for growth, if not of economic stagnation, said the Survey authored by a finance ministry team headed by chief economic adviser V Anantha Nageswaran. Wide-scale deregulation and structural reforms will reduce the compliance burden, enable businesses—especially small and medium ones—to build scale, bolster competitiveness and help catapult India into a higher growth orbit.

Endorsing a philosophical approach to governance, the Survey also called for a change in the operating principle of regulations from “guilty until proven innocent” to “innocent until proven guilty”. This would also mean “vowing and acting to stop micromanaging economic activity and embracing risk-based regulations”, it said. The Survey suggested that Ease of Doing Business 2.0 (EoDB 2.0) be a state governments-led initiative focused on fixing the root causes behind the difficulties of doing business. The states should undertake an analysis of the cost of each regulation under their domain on individual enterprises.

As part of the EoDB 2.0, states can liberalise standards and controls, set legal safeguards for enforcement, reduce tariffs and fees and resort to risk-based regulations, on top of the measures they are currently taking, the Survey suggested.

Viksit Bharat Goal
States have exclusive jurisdiction over subjects such as land, buildings, water, and local trade and commerce. They can regulate, concurrently with the union government, other areas such as labour welfare, electricity, and mechanical vehicles.

"The most effective policies governments-Union and states-in the country can embrace is to give entrepreneurs and households back their time and mental bandwidth," it said.

India needs to grow at an average of around 8% a year in real terms for about a decade or two to attain the "developed country by 2047" goal. Realising this growth rate will require an increase in the investment rate to about 35% of GDP from the current 31%.

The country shouldn't close itself to the world but redouble efforts to boost exports and attract investment by benchmarking "ourselves to the rest of the world rather than our past," said the survey.

Nevertheless, given the uncertain global environment and fraught geopolitics, the country has to rely more on domestic growth levers.

"Overall, India will need to improve its global competitiveness through grassroots-level structural reforms and deregulation to reinforce its medium-term growth potential," it said.

Citing examples of over-regulation, the survey said factory rules make it cheaper for a business to run two 150-worker factories than one 300-worker plant, discouraging economies of scale. Similarly, a factory owner with a 5,000-square metre plot may need to forgo up to 69% of the area to comply with building standards. This tract of lost land can cost up to Rs 1.58 crore and could have been deployed to create up to 509 additional jobs, it said.

At the same time, the survey underscored the significant deregulation efforts made by the Centre over the past decade, and also by some states.

The Narendra Modi government had reduced more than 42,000 compliances and decriminalised over 3,800 provisions to boost ease of doing business, according to an official statement late last year.

States such as Haryana and Tamil Nadu have amended their regulations 12 times in the past decade to make it easier to build.