The Economic Survey 2025 has given a direction for the next wave of reforms in relation to ease of doing business with quantitative parameters to access the effectives of current regulations. Further, the Union Budget 2025 has taken various steps in this direction. The article examines the need for and impact of deregulation in the light of the Economic Survey and Union Budget of 2025.
India's regulatory framework is undergoing significant transformations as the country is adopting several economic reforms aimed at fostering innovation, technological advancements and global integration. The government is constantly updating laws and policies to strengthen corporate governance norms and create a transparent, investor friendly environment with additional compliance requirements on public disclosure of information and submissions of more detailed annual reports and returns. In the era of DOGE, with special focus on ‘Make in India’ and policies surrounding ‘minimum government maximum governance’, it’s time for India to relook into the existing regulatory framework as part of Ease of Doing Business (‘EoDB’) 2.0.
The current federal structure consists of multiple regulators, sector specific norms and varied compliance requirements for the protection of various stakeholders of the ecosystem as well as consumers, employees, creditors, environment and shareholders. This creates challenges and entry barriers for businesses, especially those with limited resources, to enter the market and consequently hinders investments.
The Economic Survey of 2025 (‘Survey’) has extensively dealt with the need of deregulation to accelerate India’s economic growth. The Survey observes that firms in India often remain small to avoid the complexities of regulatory scrutiny. Therefore, it is crucial to establish an enabling policy and regulatory environment that fosters growth by eliminating barriers through deregulation and proactive policy actions at both the state and local government levels. It also notes that part of the solution lies in digitization, decriminalization and divestment of function and highlights the need for light-touch regulatory framework based on principles of trust.
Economic Survey 2025: Observations
The Survey emphasizes the importance of lowering the cost of doing business as a key strategy for accelerating economic growth and employment, especially in the face of unprecedented global challenges. A central aspect of this approach is the comprehensive review of India’s current regulatory framework, with a particular focus on reforms aimed at supporting Micro, Small, and Medium Enterprises (‘MSMEs’), which are crucial to the nation's economic landscape.
MSMEs, which contribute significantly to employment and economic output, are often burdened by complex regulations and compliance requirements. The Survey highlights the pressing need to simplify procedures and reduce the compliance burden for businesses. By streamlining these processes, the Survey argues, companies will be able to operate more efficiently, leading to the creation of more jobs—an essential step for MSMEs to scale their operations and attract further investments.
The Survey makes a compelling case for the importance of deregulation as a tool to unlock growth potential, particularly for MSMEs, and to drive India toward a more competitive and investment-friendly future. This focus on simplification, efficiency, and investment attraction reflects a broader recognition that fostering a conducive regulatory environment is key to India’s long-term economic success.
The Survey further underscores the need for a strategic overhaul of India’s regulatory framework, advocating for a ‘minimum necessary and maximum feasible’ approach and a trust-based self-regulation regime. This approach calls for reframing regulations so that only critical compliance requirements are imposed on stakeholders, while eliminating unnecessary and frivolous demands. This is aligned with the Union Government’s philosophy of ‘minimum government-maximum governance’ which strives to establish a system of good governance without excess interference from the government agencies.
One of the key tools highlighted in the Survey for improving the quality of regulations is the Regulatory Impact Assessment (RIA). Recognized by the Organisation for Economic Cooperation and Development (OECD) as an essential instrument in the regulation-making process, RIA helps assess the potential impact of proposed regulations and ensures they are designed to be both efficient and effective. Globally, countries across various income levels are increasingly adopting and refining RIA procedures, acknowledging its role in enhancing the regulatory environment.
In addition to these reform recommendations, the Survey suggests that the ‘Ease of Doing Business’ (EoDB) 2.0 initiative should be led by state governments. The EoDB 2.0 is seen as a critical step towards addressing the root causes of regulatory inefficiencies at the state level. The Survey emphasizes that states are not merely implementing bodies but are also key rule-making entities that can drive meaningful regulatory reforms tailored to their specific needs and challenges.
By shifting the focus to more streamlined and meaningful regulations, India can unlock greater opportunities for businesses, fostering a more competitive and investment-friendly environment. These reforms not only aim to improve the ease of doing business but also contribute to the broader goal of creating a robust and sustainable economy.
Measures for deregulation
The Indian government has taken significant steps towards deregulation, focusing on decriminalization, reducing punitive actions, and introducing self-regulation for emerging sectors such as Fintech and Gaming. These measures aim to foster a more flexible and business-friendly environment, enabling innovation and growth. However, while these approaches have made headway, they have not always proven to be fully effective. For instance, in the case of online gaming, self-regulation has shown limitations, leading the government to consider a more centralized regulatory approach for better growth and oversight in the sector.
The Survey reflects this nuanced perspective on deregulation. While advocating for simplification and deregulation where possible, the Survey also acknowledges that there are areas where more stringent regulatory intervention may be necessary. This recognition emphasizes the need for a balanced approach—one that allows for flexibility and innovation, while ensuring that appropriate regulations are in place to address emerging challenges and risks.
In sectors like Fintech and Gaming, where rapid innovation often outpaces traditional regulatory frameworks, finding the right balance between self-regulation and government oversight becomes crucial. While self-regulation offers businesses the freedom to operate with minimal intervention, it may not always guarantee the protection of consumers or prevent unethical practices. This is why the government is now looking at centralized regulation, particularly in sectors that pose higher risks or where self-regulation has fallen short.
The Union Budget of 2025 has taken a step in the right direction by setting up High-Level Committee for Regulatory Reforms to review all non-financial sector regulations, certifications, licenses, and permissions. The objective is to strengthen trust-based economic governance and take transformational measures to enhance ‘ease of doing business’, especially in matters of inspections and compliances. Measures like the Investment Friendliness Index of States will further the spirit of competitive cooperative federalism. Under the Financial Stability and Development Council, a mechanism will be set up to evaluate the impact of the current financial regulations and subsidiary instructions. Jan Vishwas Bill 2.0 will also be introduced to decriminalize more than 100 provisions in various laws.
Deregulation: Need of the hour
While the Government is gradually addressing the adverse impact which comes with excessive regulations in certain areas of law, the reforms introduced to address the aforesaid issues are slower than necessary. There is a dire need to accelerate the ongoing process of deregulation.
Light Touch Regulations: At the outset, the government must rapidly introduce the next stage of reforms to simplify existing processes. This includes the implementation of ‘light-touch regulations’ which will allow regulators to maintain safeguards while allowing business to operate efficiently. This may include revision of licensing norms and modification of regulatory thresholds.
Self-Regulatory Organizations (SROs): Introduction of SROs, at least for peripheral compliances will provide businesses with an opportunity to self-regulate and enforce standards with minimal government intervention. This will provide freedom and flexibility across industries while maintaining accountability and essential safeguards.
Risk and Need Based Regulation: As also highlighted in the Survey, the regulatory framework must be transformed to a ‘risk-based’ and ‘need based’ approach. A blanket solution or standardized framework across all sectors and industries having different risk profiles is inefficient and may be burdensome. Accordingly, only relevant, and targeted sectoral compliances must be imposed. Companies with low or medium risk factors must not be subject to heavy compliance requirements which may be necessary for high-risk businesses.
Minimize punitive action: Although the government is already undertaking decriminalization of provisions, extreme punitive actions are rampant and commonly enforced by regulators. This includes cancellation of licenses, hefty penalties without appropriate measures to show cause and search and seizure in case of non-payments of fines and penalties. Such punitive actions must be curbed to an extent that they are used as a last resort and not the primary enforcement mechanism.
Collaboration with industries: Regulators must work and collaborate with various sectors and industries prior to enforcing strict norms and rules. Instead of adopting a blanket approach, regulators must endeavour to establish sector-specific understanding and frame tailored norms.
Quality over Quantity: Instead of mandating excess compliance norms, regulators must focus on the quality of limited disclosures which are vital to meet the objectives of the concerned industry.
Way forward
There is a need for the regulatory framework to adopt ‘risk-based’ and ‘need based’ approach, moving away from a one-size-fits-all model. By applying a combination of light-touch regulations, minimizing punitive actions, and reducing compliance burdens, industries can operate more efficiently while maintaining necessary safeguards. Focusing on quality over quantity in compliance requirements will ensure that regulations are tailored to the unique needs and risks of each sector, promoting growth and innovation without unnecessary constraint.
[The authors are Partner, Associate Partner and Associate, respectively, in Corporate and M&A practice at Lakshmikumaran & Sridharan Attorneys, Mumbai]
