Syllabus: GS2/Governance
Context
- In a significant move aimed at promoting ease of doing business and reducing bureaucratic red tape, the Prime Minister of India announced the establishment of a Deregulation Commission.
Understanding Deregulation and Its Need in India
- Deregulation refers to the process of reducing or eliminating government-imposed restrictions on industries to promote free-market competition and efficiency.
- In India, bureaucratic red tape, excessive licensing requirements, and sectoral restrictions have often deterred businesses, particularly startups and MSMEs, from reaching their full potential.
Key Highlights of the Announcement
- Prime Minister Modi highlighted the government’s efforts to eliminate hundreds of archaic compliances through the Jan Vishwas 2.0 initiative, and emphasized the need for less government interference in society.
- Focus areas include banking, energy, telecom, retail, and manufacturing.
- The Deregulation Commission aims to identify and eliminate unnecessary government regulations.
- It aims to work alongside existing regulatory bodies such as RBI, SEBI, TRAI, and CERC, along with accelerating private investment, reducing red tape, and enhancing economic competitiveness.
Key Reasons for Establishing a Deregulation Commission
- Reducing Bureaucratic Red Tape: India ranks 63rd in the Ease of Doing Business Index (2020) by the World Bank.
- A Deregulation Commission would focus on reducing excessive paperwork, streamlining approval processes, and eliminating redundant laws.
- Enhancing Economic Growth: Sectors such as manufacturing, infrastructure, and digital economy require faster clearances and simplified compliance mechanisms.
- Encouraging Entrepreneurship and Innovation: Startups and MSMEs often struggle with regulatory bottlenecks, including multiple approvals, high tax burdens, and stringent labor laws.
- Revisiting Outdated Laws: Several colonial-era laws still exist in India’s legal framework. A Deregulation Commission could recommend amendments or repeals of such archaic laws to align with modern governance needs.
- Boosting FDI: India has witnessed increasing FDI inflows, but restrictive policies in sectors like retail, insurance, and e-commerce still pose challenges.
- Strengthening Federalism and State Autonomy: Regulations vary across states, leading to inconsistencies in business environments.
- A central body could work with state governments to create uniform policies, ensuring a level playing field for businesses across India.
- Increased Competition & Efficiency: Lower prices and better services for consumers.
- Private sector participation has enhanced productivity.
Evolution of Deregulation in India
- India’s economic liberalization initiated reforms to reduce state control over industries, encourage foreign direct investment (FDI), and promote private sector participation.
| Regulatory Commissions Overseeing Deregulation | |||
| Regulatory Commission | Sector | Role | Past Regulations |
| RBI | Banking & Finance | Monitors financial institutions and monetary policy. | – Reduced its stake in public sector banks; – Increased FDI limits in the insurance sector; – Deregulation of interest rates; |
| TRAI | Telecommunications | Ensures fair competition and consumer protection. | – 1994: National Telecom Policy allowed private players. – 1999: Revenue-sharing model replaced license fees. – 2016: Entry of Reliance Jio led to a price war, benefiting consumers. |
| CERC | Energy | Oversees electricity tariffs and open access. | – Increased private investment in power generation. – Open access to electricity transmission, allowing consumers to choose their suppliers. – Renewable energy promotion with solar and wind power auctions. |
| PNGRB | Oil & Gas | Ensures transparency in petroleum pricing. | – 2010: Deregulation of petrol prices. – 2014: Diesel price deregulated. – 2016: Introduction of daily fuel price revision. |
Negative Impact of Deregulation
- Market Failures: Unchecked deregulation can lead to monopolies and economic crises (e.g., the 2008 financial crisis).
- Job Losses in PSUs: Privatization led to layoffs in public sector enterprises.
- Regulatory Capture: Private entities may influence policies in their favor, harming consumer interests.
- Some industries saw the rise of dominant players (e.g., Jio in telecom).
- Rural Disparities: Wealth concentration in the hands of a few can widen social inequalities. Benefits of deregulation are unevenly distributed, with rural areas lagging.
- Environmental Concerns: Rapid industrial growth has increased pollution and resource depletion.
Way Forward
- Ensuring Consumer Protection: Regulations that protect consumer rights and fair competition must not be diluted.
- Preventing Corporate Malpractices: Oversight is necessary to prevent monopolies and unethical practices.
- Balancing Public Welfare and Business Interests: Sectors like healthcare and education require careful deregulation to avoid profiteering.
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