Context:

• The announcement of Administrative Reforms 3.0 by the Cabinet Secretary has renewed the debate on India's governance and institutional efficiency.
• Despite several initiatives aimed at improving the Ease of Doing Business (EoDB), simplifying regulations and strengthening administration, India continues to face bureaucratic hurdles, weak firm dynamism and uneven economic growth.
• The limited impact of previous reforms is not merely due to faulty rules or administrative inefficiency but also to deeper structural problems in the political economy and the government's approach to governance.
• Therefore, reforms must address not only administrative rules but also the institutional environment and ideology underpinning them.

Structural Weaknesses in India's Business Environment:

• The IMF and India's Economic Survey 2025-26 highlight persistent weaknesses in the business environment.
• For example,
  • Regulatory burden: Indian firms face longer customs delays than their international peers, while senior management spends considerable time complying with regulations.
  • Low firm dynamism: Firm entry and exit rates remain below 1%, compared with 8–13% in comparable economies.
  • Zombie firms: Around 15% of firms qualify as zombie firms, indicating weak productivity and inefficient resource allocation.
  • Rent-seeking behaviour: Regulatory arbitrage, protected profit margins and firm-specific concessions often take precedence over productivity enhancement, competition and learning-by-doing.
• Core concern: Political patronage, rent-seeking and perceived preferential treatment of certain business groups undermine fair competition and weaken the effectiveness of administrative reforms.

Limitations of Earlier EoDB Reforms:

• The government has introduced several formal regulatory and procedural changes, for example,
  • Tax reforms: Consolidation and simplification of parts of the tax system.
  • Labour reforms: Consolidation of labour laws into four Labour Codes.
  • Corporate reforms: Simplification of company incorporation procedures.
  • Decriminalisation: Removal of criminal penalties for several minor regulatory offences.
  • Environmental regulations: Changes aimed at easing compliance requirements.
• However, these measures have been accompanied by new complexities, for example,
  • Unclear and frequently changing Quality Control Orders (QCOs).
  • Uncertainty and inconsistency in tax enforcement.
  • Concerns over retrospective taxation.
  • Expansion of detailed regulations affecting businesses and ordinary citizens.
• Consequently, formal simplification has not necessarily translated into easier compliance or greater institutional efficiency. This contradiction is a return to "Maximum Government, Minimum Governance."

Why Have Administrative Reforms (ARC 1 and 2) Failed to Deliver?

• Political economy of rent-seeking:
  • Merely centralising the distribution of economic rents does not eliminate rent-seeking.
  • Multiple actors across different levels of government continue to extract rents.
  • Even digitised governance mechanisms can be bypassed through informal networks and discretionary interventions.
  • Political influence can weaken competition, accountability and market discipline.
• Confusing rule changes with institutional reforms:
  • Changing formal rules does not automatically transform the institutions responsible for implementing them.
  • Institutional culture, enforcement mechanisms, accountability and administrative incentives determine actual outcomes.
  • China's experience illustrates the importance of the broader institutional environment in facilitating economic dynamism.
  • Measuring reform through the number of amended rules or simplified procedures overlooks the actual experience of citizens and businesses.
• Human resource and bureaucratic challenges:
  • Identification of bureaucrats with different orientations towards administrative functioning points towards an underlying human resource management problem.
  • Administrative reforms must address bureaucratic attitudes, institutional incentives, accountability and capacity-building rather than focusing exclusively on procedural changes.

Three Foundational Principles for Effective Governance:

• Presumptive trust in citizens:
  • Citizens should be treated as autonomous individuals capable of managing their own affairs.
  • Excessive suspicion, documentation and compliance requirements increase transaction costs and administrative discretion.
  • Governance should move towards trust-based regulation, with intervention based on evidence of non-compliance rather than blanket suspicion.
• Decentralisation of governance:
  • Decision-making should be transferred to the appropriate levels of government.
  • Excessive centralisation weakens local accountability, responsiveness and administrative efficiency.
  • The spirit of the 73rd and 74th Constitutional Amendments must be strengthened through genuine devolution of functions, funds and functionaries to Panchayati Raj Institutions and Urban Local Bodies.
  • Greater autonomy for States and local governments is essential for cooperative and participatory governance.
• Minimise unnecessary surveillance and control:
  • Excessive monitoring and regulatory control increase compliance costs and discourage entrepreneurship.
  • Expanding information collection can increase discretionary state intervention rather than improve governance.
  • The state must distinguish between legitimate regulation and unnecessary interference in citizens' and businesses' activities.

Conclusion:

• India's challenge is not the absence of administrative reforms but the gap between formal policy changes and their actual implementation.
• Although mission-mode implementation has delivered outcomes in selected sectors, such as highways and certain areas of industrial policy, these achievements do not eliminate the need for broader institutional reforms.
• Administrative Reforms 3.0 must therefore focus on reforming the institutions, incentives and governing philosophy of the state itself.
• For these reforms to produce meaningful outcomes, India needs to move beyond top-down procedural changes towards structural and institutional transformation, which is essential for achieving a dynamic economy and responsive governance.