Economic Survey pushes for bold deregulation to unlock India’s growth potential

The Economic Survey 2024-25 has delivered a clear message: excessive regulatory compliance is stifling economic freedom, particularly for individuals and small businesses. Amid shifting global trade dynamics and rising geopolitical uncertainty, the survey underscores the need to prioritise internal growth levers rather than relying heavily on external contributions.

It highlights a global trend toward inward-looking policymaking and suggests that India must double down on domestic economic policies while maintaining global engagement. Given the uncertainties surrounding global trade and investment flows, the survey asserts that expectations from the external sector must be realistic. To sustain an 8% annual GDP growth rate over the next decade, India must increase its investment rate from 31% to 35% of GDP, following the trajectory of East Asian economies like Japan and China.

However, higher growth is not solely about increasing investment—it also requires improving efficiency. The survey notes that reducing regulatory bottlenecks and enhancing the ease of doing business can maximise the output generated per unit of investment.

MSMEs at the Core of Reforms

Micro, Small, and Medium Enterprises (MSMEs) bear the brunt of regulatory compliance costs, both in terms of time and financial resources. Large enterprises, with greater managerial and financial capacity, often find ways to navigate regulations more effectively. The survey argues that deregulation is particularly crucial for MSMEs, as it would ease their operational burden and enhance their competitiveness.

Over the past decade, progress has been made in this direction, with the government implementing various governance and process reforms. These include simplifying taxation laws, rationalising labour regulations, and digitising compliance processes. The survey cites a recent amendment to forest regulations—removing bureaucratic hurdles that previously prevented businesses from constructing access roads to public highways—as a case in point.

Deregulation as a Growth Catalyst

The survey positions deregulation as a pivotal tool for promoting economic freedom and fostering entrepreneurship. It recommends focusing on digitisation, the decriminalisation of business laws, and the divestment of redundant government functions.

Key areas identified for deregulation include land, labour, building regulations, and utilities. The report outlines measures such as liberalising standards and controls, establishing legal safeguards for enforcement, reducing tariffs and fees, and implementing risk-based regulations. By streamlining these aspects, the government aims to lower barriers for businesses, enabling them to operate more efficiently and compete effectively.

State-Level Reforms

Several states have taken proactive steps toward deregulation. Haryana and Tamil Nadu have amended building regulations multiple times over the past decade to facilitate construction. Punjab has streamlined building, labour, and fire regulations following consultations with industry stakeholders. Meanwhile, states such as Andhra Pradesh, Karnataka, and Haryana have eased restrictions on women working night shifts in IT-enabled services, while Uttar Pradesh has relaxed building norms for hotels.

Despite these efforts, the survey acknowledges that existing regulations continue to constrain growth by raising market entry costs and prolonging industrial distress. Many states have set ambitious targets to transform their economies from billion-dollar to trillion-dollar benchmarks over the next two decades, with deregulation seen as a key enabler in achieving these milestones.

Pointing to the success of major structural reforms such as the Goods and Services Tax (GST) and the Insolvency and Bankruptcy Code (IBC), the survey calls for the continuous modernisation of the regulatory framework. Rationalising compliance requirements will enable businesses to operate with fewer constraints, allowing India to unlock its full economic potential.