Ease of doing business reforms: As India approaches the centenary of Independence, Viksit Bharat has become the organising phrase for the government’s long-term economic agenda. NITI Aayog is now working on a reform map that seeks to replace the old regulatory default of “prohibited unless permitted” with a new principle: “permitted unless prohibited.”
That would be a significant departure from the Licence Raj. The aim is to let businesses operate unless there are clear reasons to restrict them, such as national security, environmental protection or public health. In principle, this is sound. India cannot become a developed economy while firms remain trapped in permissions, inspections and renewals that add cost without improving safety or accountability.
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Ease of doing business and the Licence Raj
The 1991 reforms removed industrial licensing in principle. But the habits of control survived in new forms. Ambiguous rules, overlapping approvals, intrusive inspections and compliance burdens continue to shape the business environment. Former cabinet secretary Rajiv Gauba has described each unnecessary permit as a continuation of the earlier regime.
The government has already removed tens of thousands of compliances and decriminalised several thousand legal provisions. Yet the gain has not fully reached the ground. Much of the regulatory burden sits at the state and municipal levels, where outdated laws, local permissions and inspection practices continue to affect firms, especially small and medium enterprises.
The next phase, therefore, is less about headline reform and more about administrative plumbing. A fixed annual regulatory calendar, mandatory regulatory impact assessments for new and existing rules, and proper measurement of compliance costs can bring predictability into policymaking. Investors have asked for these for years.
NITI Aayog reforms and self-registration
NITI Aayog’s proposal moves towards automatic self-registration and long-term or perpetual licensing. This would reduce frequent renewals, a familiar source of inefficiency and rent-seeking. Inspections would become risk-based and, in some cases, be conducted by third-party agencies.
This is where caution is needed. India is trying to move from an inspector raj to a trust-based system. That can improve ease of doing business. But it also shifts risk from the state to markets and private enforcement. In sectors such as chemicals, construction, food processing and fintech, ex-post enforcement may come too late. Once a factory accident, food safety failure or financial fraud occurs, the public cost is already incurred.
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The concern is not with deregulation itself. It is with weak regulatory design. A system built on trust works only when violations are detected quickly, penalties are credible, and regulators have the capacity to act. Without these conditions, self-certification can become abdication.
The harder question is regulatory capacity. A trust-based system cannot run on trust alone. It needs digital filings, risk scoring, audit trails, randomised inspections and quick penalties for deliberate violations. Decriminalisation should mean proportionate enforcement, not deregulation. A delayed filing by a small firm and a safety breach in a chemical plant cannot be treated as the same regulatory problem. Unless regulators are equipped to distinguish between nuisance compliance and public risk, the new framework will reproduce the old weakness in a different form.
Third-party inspections and accountability
The most contentious proposal is third-party inspection. The conflict of interest is obvious. If inspection agencies are paid by firms or compete for clients, they may have an incentive to be lenient. Similar risks have appeared in auditing and environmental compliance elsewhere.
Accountability also becomes blurred. When a government inspector fails, responsibility can at least be traced within the state. With private inspectors, liability must be clear. If a factory accident occurs, who is responsible: the firm, the inspector or the regulator? Unless the law answers this question in advance, third-party inspection will weaken enforcement rather than improve it.
The solution is not to preserve every old inspection practice. Many of them have been arbitrary, rent-seeking and hostile to enterprise. But outsourcing cannot substitute for regulatory capacity. India needs smarter inspections, not fewer safeguards.
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Risk-based regulation is the right principle. Low-risk sectors can move towards near-complete self-certification. High-risk sectors such as chemicals, mining, food and financial services cannot be governed by trust alone. The rules must distinguish between firms, sectors and hazards. A blanket model will either be too lax where public risk is high or too cautious where liberalisation is possible.
State-level implementation of regulatory reform
The reform agenda also puts responsibility on industry. Policymakers have urged firms to move away from protectionist demands and invest in competitiveness, innovation and skills. As India signs more free trade agreements, exporters will need to meet reciprocal obligations and global standards. Regulatory reform cannot become a plea for lower standards.
The bigger challenge lies in implementation. Central laws may be simplified, but firms deal daily with state departments, municipalities, pollution boards, labour offices and local inspectors. If outdated provisions remain in those systems, national reform will have limited effect.
The third-party inspection model will also require safeguards. Inspectors should be randomly allocated. Firms should not be allowed to choose lenient agencies. Rotation, disclosure norms, audit trails and strict penalties for collusion must be built into the system. Liability must be unambiguous.
Viksit Bharat cannot be built on permissions and suspicion. Nor can it be built on regulatory retreat. The task is to reduce friction without weakening public safeguards. That requires a capable state, disciplined industry and rules that distinguish between nuisance compliance and real risk.
The ambition is clear: India wants to move from being a large consumption market to becoming a global production and innovation hub. Whether this regulatory reset helps achieve that goal will depend less on the slogan of trust and more on the architecture of enforcement.