NEW DELHI: The finance ministry is assessing all financial regulators in the country and their respective regulatory frameworks to evaluate whether over-regulation is stifling economic activity. According to official sources, the ministry is preparing a draft paper, which will highlight the regulatory provisions that should be relaxed in order to support growth and encourage innovation.
The government in the upcoming Union Budget might announce its intention to relax regulations, though concrete steps would be taken only with the benefit of deductions from the ongoing review of regulatory functions and rules, said the sources.
Currently, the ministry is evaluating the regulatory framework of several regulators, including the Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI), Insurance Regulatory and Development Authority of India (IRDAI), and Ministry of Corporate Affairs (MCA), they said.
Industry executives, market participants, and economists have been urging the government to reduce compliance burden of companies and ease regulatory oversight to remove redundancies and avoidable irritants, for economic activity to improve.
According to the statistics ministry’s first advance estimates, India’s economy in FY25 is expected to grow at a four-year low of 6.4% primarily due to lower manufacturing activity as compared to FY24 and decline in investments.
Last month, chief economic adviser V Anantha Nageswaran had said that a “right balance” is needed to be struck between optimising growth and the regulatory framework in the backdrop of global uncertainties. He had said that the government has focused more on “making sure that not a single act of deviant behaviour goes unpunished, and that is something that needs to be reflected on”.
In a pre-Budget statement, the Confederation of Indian Industry (CII) on Sunday said that the government should reduce red tape, simplify regulatory frameworks, and reduce compliance burden for sustained and speedy improvement in the business climate.
The industry group said all regulatory approvals for businesses at the central, state and local level must be given only through the National Single Window System (NSWS), which will help in bringing openness and speed. At the beginning, this should be completed for all central government ministries within the next six months, followed by bringing states on the platform in a phased manner.
Former chairperson of the Insolvency and Bankruptcy Board of India (IBBI) MS Sahoo said: “Every regulation imposes costs on businesses. When the costs of compliance exceed the benefits, the regulations become excessive. Unfortunately, such excessive regulations are on the rise. In many organisations today, compliance departments have outgrown operations departments, reflecting a troubling trend.”
“Also, some regulators have adopted a reactionary approach, introducing new regulations in response to market failures without clearly distinguishing whether the cause lies in a firm’s misconduct or inadequate oversight,” he added.
However, a former senior official of the RBI told FE: “It’s okay for the government to make their assessment, but they should also honour regulatory independence. There should not be any micromanagement of regulatory policies.”
Vivek Iyer, partner, Grant Thornton Bharat said that regulatory framework relaxations could be around three aspects: rationalisation regulatory reporting requirements; move to offsite surveillance from onsite inspections and; and a move to a more principle based regulation with industry self regulatory organisations playing a larger role in detailing out the operational aspects.
Source: The Financial Express