Deregulation to be a budget priority as growth cools

New Delhi: The central government is assessing regulations across sectors to identify the ones that can be relaxed in the upcoming budget and beyond to cut red tape and help revive growth in a slowing economy, according to three people familiar with internal deliberations.

Preliminary discussions are underway to identify the sectors where regulatory easing could stimulate growth, the people said on the condition of anonymity as details have not been finalized yet.

One area that will get attention in the deregulation effort is the impact of existing rules and actions of regulatory bodies on the entities under their jurisdiction, according to one of the three people quoted earlier. If there are areas of over-regulation, it will be addressed, the person said.

None of the people quoted above, however, mentioned sectors or specific regulations that are under review.

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Queries emailed on Friday to the finance ministry, NITI Aayog, and the Prime Minister’s Office remained unanswered at the time of publishing.

Finance minister Nirmala Sitharaman’s budget proposals for the next fiscal 2025-26 —to be presented on 1 February —will be keenly watched as India’s urban consumption has slowed and the pace of growth cooled. GDP expanded 5.4%, its slowest pace in seven quarters, in the second quarter ended September, compared with 8.1% a year earlier and 6.7% in the three months prior.

Improving the ease of doing business by reducing compliance burden and fostering a more dynamic business environment is on the agenda, said the second person quoted earlier. “The issue of deregulation also came up during Prime Minister Narendra Modi’s recent budget consultation with economists. We could expect budget announcements."

Backing easier regulations

India’s industry lobby Confederation of Indian Industry (CII) backs easier regulations to boost growth.

There is a need to maintain the momentum of deregulation, said Chandrajit Banerjee, director-general at CII. He cited labour, environment, land, energy access, credit availability, and agriculture as the sectors that present opportunities for further deregulation to create a dynamic and competitive market ecosystem.

“Streamlining Industrial Disputes Act, Factories Act and Contract labour Act, through the implementation of labour codes would provide great flexibility in employment and reduction in compliances," said Banerjee. In banking, he said, it can broaden credit access and financial inclusion; while in energy, it can drive technological innovation and service quality through competition.

Deregulation has been the key feature of economic reforms in India since 1991 and has picked up momentum over the last decade, according to Banerjee. The central and state governments have in recent years rationalized over 42,000 regulatory provisions at pan-India level, he said.

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Sitharaman, in the full budget for FY25 presented in July, promised an economic policy blueprint setting the scope of next generation of reforms to boost employment and growth.

“Efforts are [on] in this direction: if the economy has the potential to expand at a particular rate and we are not able to realize that potential fully due to various headwinds, can deregulation help us unlock that untapped potential? Union budget will offer guidance on this," said the third person quoted earlier.

Amit Maheshwari, tax partner, AKM Global, a tax and consulting firm, said “Deregulation can act as a catalyst to strong economic growth as it will remove barriers to business and also encourage investment."

Key areas for deregulation

Key areas where deregulation can make a significant difference is land and labour laws by streamlining processes to reduce costs and complexities for businesses; and by simplifying environmental clearances, particularly for sectors like renewable energy and infrastructure, said Maheshwari. Regulations should be eased in areas like fintech and e-commerce so that innovation is encouraged, he said.

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Banerjee, however, added that while deregulation holds immense potential to unlock entrepreneurial creativity and drive economic expansion, it must be approached with caution and be complemented by robust safeguards. Without appropriate oversight, excessive deregulation can lead to market imbalances, exploitation of resources and systemic risks undermining long-term stability, he said.

Any deregulation, according to AKM Global’s Maheshwari, has to be implemented strategically to ensure it benefits all sectors of the economy, including small and medium enterprises as well.