Let enterprise flourish: Policy mustn’t punish risk-takers in the name of reducing uncertainty
This Diwali, India must recall its age-old ethos of profit as a reward for risk. The real challenge businesses face is uncertainty not from markets, but from opaque rules and shifting regulations. Make space for the profit motive and don’t intervene unnecessarily in matters of risk and reward.
The country is gearing up to celebrate Diwali, which, along with the return of Lord Ram to Ayodhya, is celebrated as the festival of Goddess Mahalakshmi. Business and trading communities spruce up their establishments and refurbish signs of ‘Shubh Labh’ (auspicious profit), often prominently displayed. The importance of profit and the profit motive is imbued in our culture and the worship of Mahalakshmi is associated with reverence for profit-making.
Over two decades ago, I had written a newspaper column emphasizing the importance of the relationship between business, profit and risk-taking. The work of Frank Knight, who distinguished between risk and uncertainty, is of timeless relevance. While risk can be insured against, uncertainty cannot. An entrepreneur’s principal role is to step into the unknown—and profit is society’s reward for this endeavour. However, regulation and regulators often confuse the two; they aim to limit uncertainty, but end up stifling enterprise.
The world today faces new sources of uncertainty: climate, technology and politics. Our challenge is for our policy environment to recognize these changes and adapt to promote entrepreneurship.
Since I wrote the article, many improvements have been made in the business environment.
A new Insolvency and Bankruptcy Code acknowledges the natural role of failure in a healthy business ecosystem, establishing mechanisms for restructuring and honourable exits; a new policy framework supports venture capital and startups; the normalization of forward markets and derivatives—once considered taboo—recognizes the role of speculative behaviour; the development of digital platforms and fintech has made commerce easier and reduced transaction costs.
However, perceptions of an overbearing regulatory environment persist. It has widely been observed that whenever the state fears uncertainty, it tightens control over businesses . Social media is full of complaints from entrepreneurs grumbling about policy unpredictability, regulatory opacity and harsh compliance regimes. Multiple clearances from various authorities are necessary even for the simplest business activities. And so on.
Beyond social media, even formal regulatory conduct reflects this phenomenon: frequent contradictory circulars, ad hoc bans, retroactive interpretations and heavy penalties. The real cost is uncertainty—not from markets, but from governance itself.
In the last two decades, uncertainty has evolved as the world around us has changed. Manufacturers must now anticipate carbon pricing and environmental, social and governance (ESG) compliance; fintech firms must navigate privacy rules and shifting regulatory requirements; and content platforms face content liability and takedown orders.
The problem is not with requiring regulation, but with the lack of transparency in this process. The current government came to office on the promise of ‘Minimum government, maximum governance,’ and in its first term, it took many steps to make the administration more citizen- and business-friendly.
However, somewhere in the response to the pandemic, we seem to have lost sight of this foundational principle and reverted to governance styles associated with the past.
To revive the moral essence of Shubh Labh and a civilizational ethos that respects risk and profit, we need a business-friendly environment. This calls for:
The creation of a framework for regulatory impact assessment in each branch of government; learning from our northern neighbour and creating regulatory sandboxes and pilot licensing systems to enable controlled experimentation and let a thousand flowers bloom; elevating forbearance on retrospective regulation to a Constitutional principle across both the Centre and states, and covering all arms of governance—legislative, executive and judicial; instituting a system of relief for good-faith behaviour; providing mandatory sunset and renewal clauses in all regulations; and introducing a system of advance notification before any new regulation.
To achieve these goals, it is essential to change the attitude and character of our governance agents. When the Prime Minister announced Mission Karmayogi, he used language from the Bhagavad Gita, which visualises civil servants as ‘sthitaprajna’ (people of steady wisdom, free from attachment, desire and anger). However, in practice, it has merely resulted in a rebranding of refresher training courses.
An example of how the ‘civil service’ undermines reforms while outwardly complying can be seen in the Jan Vishwas Bill, which aimed to remove harsh criminal provisions but has mainly resulted in the elimination of obsolete and minor technical provisions. A similar problem is observed in tax-reform implementation—while the political leadership envisioned a non-adversarial system, its execution created loopholes that have allowed existing practices to persist.
The spirit of Diwali requires us to respect Shubh Labh and let entrepreneurs face uncertainty—but not ambushes. The traditional indulgence in gambling during Diwali is an ancient recognition of the link between profit and risk-taking. Some will be winners and some losers, but by virtue of their willingness to participate, they are all eligible for the blessings of Mahalakshmi.
As we light lamps to symbolize the fight against darkness, we must remember that the flame of risk-taking has to be protected.
The author is a visiting professor at the Institute for Studies of Industrial Development and former chief statistician of India
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