Economic Survey 2021 says ‘overregulation’ leads to opaque decision making, pitches for simple regulations

Budget 2021 | Representative image:

Budget 2021 | Representative image:

The Economic Survey 2021, released on January 29, observed that India’s administrative processes derive less from lack of compliance to regulatory standards, but from ‘overregulation’.

“International comparisons show that the problems of India’s administrative processes derive less from lack of compliance to processes or regulatory standards, but from overregulation,” the Economic Survey said.

Overregulation, not simpler regulation, leads to opaque decision making, the survey said.

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In a chapter titled ‘Process Reforms: Enabling decision-making under uncertainty’, the survey document talked about overregulation using a study of time and procedures taken for a company to undergo voluntary liquidation in India. “Even when there is no dispute/litigation and all paperwork is complete, it takes 1,570 days to be stuck off from the records. This is an order of magnitude longer than what it takes in other countries,” the survey said.

The survey document also argued that the problem of overregulation and “opacity in Indian administrative processes” flows from the emphasis on having complete regulations that account for every possible outcome.

“This is due to the inadequate appreciation of the difference between ‘regulation’ and ‘supervision’, on the one hand, and the inevitability of incomplete regulations, on the other hand,” the Economic Survey observed.

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It added that real-world regulation is inevitably incomplete because of the combination of “bounded rationality” due to “unknown unknowns” and complexities involved in framing “complete” contracts across all possible contingencies, and the hurdles for a third party to verify decisions.

According to the survey, the problem is that policymakers tend to favour prescriptive regulation over supervision. “Unlike supervision, regulation can be easily measured. After all, regulations provide criteria or checklists, making it easier for regulators to follow and reduce their accountability later on. In contrast, it is difficult to quantify the amount and quality of supervision,” the survey added.

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The document suggested that the solution would be to have simple regulations with a transparent decision-making process. “Having provided the government decision maker with discretion, it is important then to balance it with three things – improved transparency, stronger systems of ex-ante accountability (such as bank boards) and ex-post resolution mechanisms,” the document added.

The survey also said that the new Government e-Marketplace (GeM portal) has increased transparency in pricing in government procurement and that it has not only reduced the cost of procurement, but also made it easier for “the honest government official” to make decisions.

The Economic Survey 2021 also said that India’s real gross domestic product (GDP) is expected to grow by 11 percent in FY22, making it one of the world’s fastest-growing economies in the aftermath of the COVID-19 pandemic.

For FY21, the economy is expected to contract by 7.7 percent, the survey said. This is in-line with the estimates of the Reserve Bank of India (7.5 percent contraction), and the National Statistical Office (7.7 percent contraction).

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