View: Ease of biz starts in the states

The modern industrial economy has been getting increasingly complex. There is greater need for better standards for safety, health and environment. No inherent contradiction exists between this and improving ease of doing business.

The problem is the legacy mode of thinking in government. While large firms can find resources for coping with excessive regulatory burden, MSMEs and startups find the burden too heavy. Much of the work that needs to be done is the job of state governments, and municipal and district authorities.

All regulatory requirements across all agencies in a state should be listed. They should be subject to a fresh independent scrutiny, Only those that pass the test of a professional regulatory impact assessment (RIA) should be retained. Officers heading departments and agencies normally don't have time or inclination for this.


GoI could take the initiative and start working in partnership with willing chief ministers to put together an expert team for undertaking a wholesale review exercise. This team should take one sector at a time and make recommendations. This would be a new model of central and state government partnership. This exercise could be guided by a few suggestions:

Do away with prior permission
For instance, a radical reform would be having European pollution control standards for an industrial plant, with sensor-based real-time measurement of air and water emissions to be logged in a control room. There would be pre-programmed escalating financial penalties for breaches, and time-bound closure till processes are rectified to keep emissions within permissible limits.

This would be better than the present lengthy process of experts going through pollution control technologies proposed, and recommending environment clearance. Prior clearance could be done away with. Adequate capacity and codes would need to be built to operationalise this.

External certification
Government inspectors could be replaced with a credible, real-time data-logged third-party inspection and certification process. The latter would, in turn, need to be subject to audit, and strong penalties in case of breaches, to ensure quality.

Reduced record-keeping and reporting requirements
This can reduce costs of regulatory compliance substantially. Institutionalisation of regulatory impact assessment and undertaking of cost-benefit analysis would be crucial. The exercise would make transition to digital governance more efficient. But someone would have to read forms with a fresh mind, and see what can be eliminated, merged or simplified.

As the work proceeds, legal provisions, rules, regulations, implementation and government orders would need to change. There is huge inertia and resistance to change in government agencies. Patient, transparent consultation with all stakeholders, in an effort to generate a broad consensus, would be essential. This would make it so much easier for a CM to use her or his political capital to steer the transformation.

Success in any one area would have the effect of getting other states to study and see whether they can do something similar. A grassroots constituency for reforms could emerge and gather momentum. This would generate a sustainable momentum for reform across departments.

This initiative would need backing of a strong central leadership. Test of success would be honest feedback from small entrepreneurs and startups, whose growth would be the proof of the pudding.

This article is part of an expert serieson trade policy curated exclusively for ET by CUTS International