Viewpoint: Regulation and Economic Growth

02 MAR,2020 | MEDC


 

Regulatory overreach is definitely a factor affecting economic growth. For example, a complex and unpredictable tax administration is a substantial burden on any economy. Retrospective tax claims are also a risk factor for conducting business in any jurisdiction. For investors, especially overseas ones, tax unpredictability in India continues to remain a key concern. India also has to grow beyond the stage where, if a policy error is made, it is almost equated with a sin. That is the reason why many well-meaning bureaucrats are reluctant to take decisions. This attitude does not bode well for the future of the economy, and fulfilling the rising aspirations of our people. Of course, there is also much to be optimistic about. The rankings on ease of doing business, single window and deemed clearances have been improving. India’s integration with global value chains is rising. Most global businesses can no longer afford to ignore our economy. Maybe it is now time to go a step further and put in place a system of regulatory impact assessment for all regulations. The question to ask is whether the additional cost to a business of complying with a regulation outweighs the public benefit arising from it. Bureaucracies the world over have an intrinsic tendency to overregulate, and it comes at a cost to the system. Even in America, the epitome of the free market economy, there are constant calls for deregulation. India has much to gain by rationalizing regulation for economic growth, especially pertaining to its fiscal and compliance policies. Changing decades old attitudes isn’t easy, but the alternative is to continue nurturing a stagnant environment which encumbers the ease of doing business and stifles entrepreneurship. If India is to become a $ 5 trillion economy over the coming four years, managing regulatory processes to stimulate fundamental change is essential.

*Photo Credit: Google

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