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Deregulation under the Modi government
Live Mint, July 17, 2018

By Pradeep S Mehta

The Narendra Modi government is nearing the completion of its term. Unsurprisingly, it is keen to list its achievements in the past four years and has deployed its entire machinery to spread its message across the country.

One of the key success stories propagated by the government is regulatory reform or deregulation. It involves eliminating archaic laws and rationalizing existing laws. The objective is to optimize regulatory stock and flow to reduce regulatory burden on different stakeholders. This espouses the ideals of sabka saath, sabka vikas and “maximum governance, minimum government” conceptualized when the National Democratic Alliance came to power. These themes are now being merged into the slogan of “ease of living for all”, of which “ease of doing business” is an integral part.

Since 2014, by way of four repealing and amending laws, the government has scrapped around 1,178 laws. Of these, approximately 335 were Acts which amended existing laws, 16 were Acts which repealed existing laws, and 758 were Acts which authorized appropriation of funds. Presumably, all these Acts had outlived their utility. In other words, only around 69 Acts were actually operational when repealed. By government’s own admission, most of the Acts repealed were irrelevant. They had ceased to be in force, or had become obsolete, or had lost their meaning, or their retention as a separate Act was unnecessary.

The last repeal happened in 2015. In 2017, the government introduced two repeal and amending Bills to scrap around 239 Acts, of which around 101 are amendment Acts, 11 are appropriation Acts, 20 are repeal Acts and nine are ordinances. The Bills are yet to be passed.

Repeal of inoperative legislations might not be the best tool for regulatory reform when the objective is to highlight it as a major achievement in making life easier for citizens or businesses. The utility is limited to reducing the thickness of the statute book. The government’s resources are limited and should be judiciously used. The efforts required in identification and repeal of such legislations may outweigh the benefits from such repeals.

In addition to the repeals, in the past four years, the government has amended close to 65 existing legislations and has introduced 33 new legislations. Around 39 ordinances have also been issued during this period. A close analysis reveals that during the Modi regime, for every two relevant Acts repealed (total around 69), close to three new Acts (including amendment Acts) have been introduced (total around 98). This is not a record to be proud of, especially when deregulation is claimed to be one of the key success stories of the government.

The issues which new Acts relate to include the goods and services tax, insolvency and bankruptcy, real estate, labour laws and financial sector, among others. While these Acts intend to address key problems and make life easier for stakeholders in relevant sectors, it appears that this is unlikely to happen soon. Interpretation, administration, compliance, and transition related challenges are keeping affected parties busy, resulting in high compliance costs. Even if prevailing issues are addressed, new issues are expected to crop up.

Despite good intentions, the deregulation initiatives of the government do not appear to have had significant positive impact. This is because good processes are far more important than good intentions in a law-making process.

Key components of a good law-making process are: clarity in problem to be addressed/objectives to be achieved; high likelihood of the proposed law of achieving such objectives; the costs at which such objectives are achieved are likely to be substantially outweighed by the benefits.

Such ex-ante assessments of objectives, costs and benefits form the core of regulatory impact assessment (RIA) framework, a globally recognized good practice in law making adopted by different countries, including the UK, US and Australia. RIA can be applied for designing new legislations as well as reviewing the effectiveness of existing laws and designing amendments. It is as suited for legacy issues such as regulation of small and medium enterprises, as for emerging issues such as regulation of two-sided markets and network industries.

For instance, the government of Maharashtra recently issued the Maharashtra City Taxi Rules to regulate taxis linked with app-based aggregators. Utilizing the RIA framework, we estimated that if the rules are adopted, the per day cost to consumers and drivers may increase by 40% and 93%, respectively (details available at goo.gl/Hkxdio).

Similarly, the government of Rajasthan is considering amendments to the Rajasthan Shops and Commercial Establishments Act. Based on a rapid cost-benefit analysis, we found that the total net monetary cost to stakeholders is likely to marginally increase (details available at goo.gl/EinmkW). Appropriate suggestions to reduce costs and enhance benefits were made in both cases.

Several expert committees have recommended RIA for India. At present, the Better Regulatory Advisory Group (BRAG), chaired by the secretary, department of industrial policy and promotion, is considering adoption of RIA for India. As a member of BRAG, we have suggested a model for adopting RIA in India. The government should consider these suggestions to attain its deregulation agenda and ensure ease of living for all.

Pradeep S. Mehta is secretary general of CUTS International.

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