India is capable of building its policy institutions and turning them into effective tools that support a variety of benefits.
In 2015, India surpassed China to become the fastest growing large economy in the world. But by looking at India’s population and its economic footprint, its economy is still small in comparison to that of the U.S., China or the European Union.
India still has a lot to learn from other economies. Most specifically, India requires an effective long-lasting regulatory system that promotes the collaboration of all stakeholders, instead of the existing top-down system.
In most countries, regulations are a means to strive for needed outcomes, but in India, they have been used by politicians as tools to push for their personal agendas. Such selfish power moves result in negative consequences for the country since no one is contemplating the impact this behavior has on the creation of jobs (or lack thereof), the environment, economic growth and social life.
Considering the current highly competitive global economy, regulations should be viewed and utilized as a way of seeking cost-justified environmental and social benefits, while at the same time improving citizens’ economic well-being.
The United States has a booming economy mainly because it utilizes regulations and regimes. The U.S. economy is significantly influenced by its sophisticated, and somewhat confusing, regulatory regimes that aims at achieving policy goals and improving its economic activities.
Vibhuti Jha, director of LDJ Capital, said, “India has an opportunity to improve its economic competitiveness globally by learning and implementing some of the U.S. regime’s policies, systems and regulations.”
The three areas where India can benefit from the U.S. in improving its own regulatory processes are:
1. Collaborative approach
The process of enacting regulations is complicated and lengthy for it involves getting inputs from the government, the public, as well as the industry stakeholders. Neglecting inputs from key stakeholders creates heavier burdens in the sector, thus inhibiting growth.
The startup sector of India, which is among the most dynamic globally, has numerous ambiguous and cumbersome regulations that make it difficult for investors and entrepreneurs to grow their businesses. For example, entrepreneurs have difficulty accessing funds from external investors due to the many existing foreign exchange controls and regulations.
Another example is the cumbersome regulations placed on foreign ownership of Indian companies, resulting in delayed and complicated investments. This is why companies backed by venture capitalists are being launched outside India.
India can solve this problem by establishing collaborative regulatory advisory boards with members from different perspectives including the public, private and government sectors. These boards will formulate regulations that address all concerns, thus promoting investments and economic activity.
2. Impact assessments
Regulatory agencies should carry out impact assessments before issuing rules on particular deals, such as those exceeding a certain amount of money. The assessments should focus on examining the regulation trade-offs, and whether or not intended goals were attained within the agreed costs and terms.
The proposing agencies are required to make their own evaluation. This is a conflict of interest which may result in exaggerated benefits and underestimated costs.
Moreover, these proposing agencies usually do not have adequate resources to carry out the required assessments.
3. Agencies’ overlapping authorities
If authorities at different levels overlap, businesses get affected negatively. The most common effect is increased business costs.
Usually, this is a result of an information gap between complying companies and government agencies. Failure by agencies to cooperate and review their functions leads to regulatory breakdowns, which is a major hindrance to economic activity.
The drug industry is among the key engines to India’s economy, exporting over $15 billion annually. However, the World Health Organization estimated that about 20% of drugs in the Indian market are fake.
This situation is largely attributed to India’s drug regulator’s limited authority and inadequate capabilities to fight counterfeit drugs. Considering the economic importance of this industry, there is a need for greater collaboration between the private and public sectors to address these concerns.
India is capable of building its policy institutions and turning them into effective tools that support a variety of benefits including job creation, improved environmental and working conditions, and economic growth. The country will reap great benefits once it promotes transparency and deep collaboration between the government and business community by establishing regulations that will enhance global competitiveness.
Regulatory agencies should also welcome the collaborative efforts aimed at harmonizing and simplifying regulations. In turn, they need to lend a hand in strengthening India’s economy by achieving regulatory goals that will reduce burdens, such as compliance costs.