Clearing 'Regulatory Cholesterol': Why PMO-Driven Effort Must Be Reinforced, Not Derailed
The scrapping of 69 QCOs signals a long overdue shift to simpler rules, lower compliance costs and a trust-based regulatory system.
The challenge is to keep the momentum and prevent vested interests from slowing a clean-up vital for jobs and growth.
After a very long time, India is finally beginning to detoxify its regulatory environment. Earlier this month, the government rolled back 14 quality control orders (QCOs) relating to intermediates used by the high-employment textiles industry, and 55 other QCOs on steel-related intermediate products that are used in multiple industries.
Among other things, the removal of these 69 QCOs in intermediates and intermediary products used in textiles and other industries will benefit exporters. The micro, small and medium enterprises sector (MSMEs) will heave a sigh of relief as burdensome regulations that contribute little to improving the products that final consumers actually use are thrown into the dustbin one by one.
These moves come just three months after Prime Minister Narendra Modi, speaking to the nation on Independence Day, promised next-generation reforms to evaluate all current laws, rules and procedures related to economic activities in order to:
(1) reduce compliance costs for startups, MSMEs, and entrepreneurs,
(2) provide freedom from fear from arbitrary legal action, and
(3) ensure streamlined laws to ease the rigours of doing business.
A time-bound action plan was to be initiated, for which a high-level panel under Niti Aayog member Rajiv Gauba was to make suggestions. These suggestions are now coming in torrents, and follow-up actions are also seen to be in fast-forward mode.
The Economic Times reports that Gauba has already suggested 38 broad measures covering four segments, with MSMEs being the prime focus as they are overburdened with more than 1,400 compliance requirements and need to monitor 40 regulations regularly. The other three focus areas were food safety laws, environmental regulations and the QCOs issued by the Bureau of Indian Standards (BIS).
Clearly, the QCOs clean-up has begun with the scrapping of 69 of them in one go, with more to come. This removal of “regulatory cholesterol”, a term often used by Manish Sabharwal of TeamLease, will help support exports and improve ease of doing business.
The government must not only stay the course, but also steadily expand the deregulatory moves beyond just QCOs and include other rules and norms that impede rather than support entrepreneurship and employment generation.
The Gauba panel has asked the government to scrap as many as 27 existing QCOs covering inputs involving base metals, plastics and polymers, footwear and electronic components. It went further and suggested that 112 more products that were due to come under a new QCO regime be held back till they are re-examined.
The last suggestion is very important, for it gives the government time to evaluate the reasons why QCOs are imposed, and weigh the costs and benefits before they are reintroduced.
These deregulatory moves come nearly 10 months after the Economic Survey 2024-25 called for regulatory reforms because high compliance burdens hold “back formalisation and labour productivity, limit employment growth, choke innovation and depress growth”.
One reason why small firms choose to remain small despite growth opportunities is to avoid coming under the regulatory radar which increases compliance burdens. Put another way, they fail to improve productivity and grow scale.
The Gauba panel wants the overall approach to regulation to be trust-based, without aggressive interventions by regulators at every stage of the compliance process. The idea should be to focus on final products, which is where questions of protecting consumers from bad products really need to be addressed.
The problem with regulation, any regulation, is that it is often introduced with the best of intentions: to protect consumers or citizens from the activities of corporations that may care more for profits than public safety or the environment.
However, every regulation has a downside: they need to be enforced, and in the process of enforcement we create opportunities for the extraction of rents by unscrupulous elements in the regulatory agencies. The purpose of regulation is to ensure good outcomes, not to penalise minor infarctions of the rules and compliance norms.
India’s regulatory regime is widely seen as a tool for harassment and bribery rather than just a necessary condition for ensuring public safety and quality products. It is time to change that image.
The Modi mission headed by Gauba is on the right track, and one hopes that vested interests in various regulatory agencies and even among the bureaucracy do not connive to derail it. It must be monitored by the PMO as closely as possible to prevent derailment. India’s future growth story, especially growth with good quality jobs, depends on the quick elimination of regulatory cholesterol.