NEW DELHI: Enhancing economic freedom for individuals and small businesses is the most important policy priority to define and bolster India’s medium-term growth prospects, a finance ministry document said Friday.
Amid this new and emerging global reality, the best way to succeed with these structural reforms is to start relying on the internal engines and domestic levers of growth, focusing on a central element – the economic freedom of individuals and organisations to pursue legitimate economic activity.
“Accelerating and amplifying the deregulation agenda already underway in the last 10 years is the need of the hour. Also, every state can learn from the best practices of other states in different areas so that all progress in unison,” said the Economic Survey.
It said the faster economic growth that India needs is only possible if the Centre and state govts continue to implement reforms that allow small and medium enterprises to operate efficiently and compete cost-effectively.
By reducing excessive regulatory burdens, govts can help businesses become more efficient, reduce costs, and unlock new growth opportunities. Regulations increase the cost of all operational decisions in firms, the Survey said.
Recognising that govt has implemented several policies and initiatives over the last decade to support and promote growth of MSMEs, the Survey said some challenges in regulatory environment remain, adding regulatory compliance burden holds back formalisation and labour productivity. It said tendency for firms in India to remain small and the logic for it often is to remain under the regulatory radar and steer clear of rules and labour and safety laws.
The Survey said the biggest casualties of this are employment generation and labour welfare, which most regulations were originally designed to encourage and protect, respectively. It said Centre has undertaken deregulation by implementing process and governance reforms, simplifying taxation laws, rationalising labour regulations, and decriminalising business laws. States have participated in deregulation by reducing compliance burdens, and simplifying and digitising processes.
Stating that such efforts have laid the foundation for states to embark on the next round of reforms, the Survey outlined a three-step process for states to review regulations for cost-effectiveness. They include identifying areas for deregulation, comparing regulations with other states and countries, and estimating cost of each of these regulations on individual enterprises. The document highlighted that Ease of Doing Business 2.0 should be a state govt-led initiative focused on fixing root causes behind unease of doing business. It said must break new ground on liberalising standards and controls, setting legal safeguards for enforcement, reducing tariffs and fees, and applying risk-based regulation.
Concerted actions by states towards deregulation will lift sentiment, enhance faith and trust in governance, and even improve compliance, the report said.