Industrial Sector Updates – Industrial Policy, Ease of Doing Business, etc.

[op-ed snap] Changing the Indian state from bully to allyop-ed snap


Mains Paper 3: Economy | Changes in industrial policy & their effects on industrial growth

From the UPSC perspective, the following things are important:

Prelims level: Not much

Mains level: The burden of compliances on MSMEs and the need for its reduction


MSMEs overburdened with compliances

  1. Policy imagination and rhetoric often romanticize MSMEs over large employers because it believes that MSMEs are a source of massive job creation, are the salvation of less-skilled job seekers, and embody solid middle-class values
  2. But India’s 63 million micro, small and medium enterprises (MSMEs) can’t hear what policymakers say because of what they do—unleashing a universe of 60,000-plus possible compliances and 3,300-plus possible filings for enterprises
  3. No MSME can possibly keep track of this regulatory cholesterol that is made even more toxic by 5,000-plus changes annually

Using expressivism

  1. much of India’s regulatory cholesterol for employers is not driven by economic justifications—consumer protection, market failures, information asymmetry and externalities—but reflects what economist Cass Sunstein calls expressivism
  2. In this concept, values rather than facts are used to make policy

Three challenges for technocratic policymakers

  • Distribution (hard to identify who bears costs and obtains benefits)
  • Welfare (nobody has a welfare metre and proxies are useful but can produce serious errors)
  • Knowledge (nobody knows enough, and guesswork and unintended consequences are inevitable)

MSMEs need to be protected from this regulation burden

  1. The progress made in Ease of Doing Business (EODB) rankings is real, but it’s time for another exercise that takes a ground-up look at our current regulatory frameworks
  2. India’s next wave of EODB should have three vectors
  • Rationalization (cutting down the number of laws)

Rationalization could start with clustering our 44 labour laws into a single labour code and should include reviewing levels and increasing competition (There can be a competition for mandatory employer payroll deduction monopolies like provident fund and Employee’s State Insurance that offer expensive products and treat customers badly)

  • Simplification (cutting down the number of compliances and filings)

Simplification would include replacing our 25-plus different numbers issued by various government arms to every employer with a unique enterprise number (an Aadhaar for enterprises)

  • Digitization (architecting for true paperless, presence-less and cashless)

We must move away from the current approach to digitization as a website, where you log in with a password and upload files and shift to open architecture-based API frameworks, where multiple players compete in providing services to employers (GST Network is a good template)

Way forward

  1. Changing regulations every three hours makes life miserable for MSMEs and breeds informality (a sense of humour about the rule of law)
  2. The next avatar of our EODB programme must aim to decisively shift the Indian state from being an MSME bully to an MSME ally
  3. The upside could be about 50 million more formal jobs

Leave a Reply

Please Login to comment
Notify of