Ease of Doing Business should be a state-led initiative, not a sole mandate of Union govt: Economic Survey 2024-25
Jan 31, 2025
Synopsis
The Economic Survey suggests that Ease of Doing Business (EoDB) should be driven by state governments, rather than being solely mandated by the Central government.
Ease of Doing Business (EoDB) should be a state-led initiative rather than being a mandate of the Central government since they have exclusive jurisdiction to regulate several subjects such as land, buildings, water, etc., said the Economic Survey 2024-25, tabled on Friday by Union Finance Minister Nirmala Sitharaman. “This approach would enable states to take ownership of reforms, tailor them to their specific needs, and foster a competitive environment that promotes investment,” it added.
“Ease of Doing Business (EoDB) 2.0 should be a state government-led initiative focused on fixing the root causes behind the unease of doing business. States are rule-making bodies and not just implementing agencies. States have exclusive jurisdiction to regulate List II subjects like land, buildings, water, and local trade and commerce. States can regulate concurrently with the union government on List III subjects like labour welfare, electricity, and mechanical vehicles,” added the Survey.
According to the Economic Survey, drafted by Chief Economic Advisor V. Anantha Nageswaran and his team, states should take the initiative to identify areas ripe for deregulation. The Survey recommends that states undertake systematic deregulation by conducting a thorough review of existing regulations to assess their cost-effectiveness. This approach aims to streamline regulatory frameworks, promote economic efficiency, and foster a more business-friendly environment.
“States can systematically deregulate laws on all these subjects by amending the primary law. Where the Union government sets the primary law, states also have the option to deregulate by amending subordinate regulations. States should consider these options while identifying opportunities for deregulation,” it said.
Excessive regulations hurt growth
The Survey also says that the current regulations act as binding constraints on growth by increasing the cost of market entry, force-fitting inefficient models for operations, and prolonging industrial sickness.
“Regulations hurt businesses’ ability to start and grow over time. For example, factory regulations make it cheaper for a business to run two 150-worker factories than one 300-worker factory, discouraging economies of scale. Regulations also hurt workers by discouraging job creation, limiting wages, and encouraging informal employment. For example, Indian workers cannot formally work overtime because the law requires employers to pay at least twice the regular wage,” it noted.
The Survey also said that the regulations increase the cost of all operational decisions in firms. “For example, factory owners must dedicate time and resources to obtain the Change of Land Use license and ensure compliance with zoning regulations. Factory owners must also invest in transportation, additional land, construction of rooms for rest and canteens, and paperwork to employ women on night shifts. Current regulations also discourage innovation and creative destruction. Similarly, Indians cannot undertake apprenticeships while undergoing formal education due to working hour limits on apprentices,” it noted.
[The Economic Times]
