Keep inspectors away

RBI Governor Raghuram Rajan.

India may have dismantled the licence raj but as RBI Governor Raghuram Rajan recently noted, the inspector raj still continues. That’s something the BJP-led NDA government seemed to be mindful of in 2014 when the party’s manifesto committed to eliminating obsolete laws and regulations and administrative structures. Since then, the government has chipped away at this while announcing a set of measures aimed at light regulation for start-up ventures, including ensuring no inspection for three years for a business relating to labour and environment, and compliance with law, post self-certification. Over the last few years, some states have responded to the challenge of attracting investment and creating jobs by cutting down on the approvals required for a host of activities and attempting to make it easier to do business. But the recent move by the government to regulate the licencing of genetic modification crop technology in what should normally be an issue of a private contract along with imposing stock controls and turnover limits and raiding of warehouses, may only serve to reinforce the belief that a licence raj regime is far from being dismantled after over two decades of the opening up of the economy.

Not only the central bank governor, but others too have made a strong case for a system of self-certification, with some checks built in, especially for small and medium enterprises which account for a substantial share of national output. There are jurisdictions where light regulations and easier norms have worked well, as in the UK. India’s home grown software services firms have prospered over the last decade or two also because successive governments were mindful of the fact that keeping inspectors away was critical to sustaining the fortunes of that industry. Policy-makers would surely be aware of this at a time when reports indicate that a recovery could be around the corner. That may well be encouraging but the sobering fact is that global oil prices have started climbing back again, limiting the gains which have accrued so far to the government in terms of a lower oil import bill and inflation.

Next month, India will mark 25 years of the elimination of industrial licensing. It offers the government an opportunity not just to review outdated laws and regulations but also to frame policies which will help equip India and local firms to take advantage of a possible global economic rebound in the offing.