Context

• India stands out among emerging economies for an unusual characteristic: its economic growth has been led not by manufacturing, as is typically the case, but by the services
• Since 1980, the share of manufacturing in India’s gross value added has barely risen, from 16% to 17.5%, while services have surged from 33% to 55%.
• This distinct trajectory reflects not only the dynamism of India's services sector but also deep-rooted structural and regulatory challenges within its industrial base.

Reason Behind India’s Manufacturing Stagnation: The Regulatory Burden on Manufacturing

• Unlike services, which have historically flown under the radar, manufacturing has been tightly bound by outdated and often arbitrary regulations.
• The factory continues to be treated as the archetype of industrial activity, attracting more scrutiny and compliance requirements than service-sector firms such as call centres or software companies.
• This regulatory bias has created an imbalanced ecosystem. As services grow, they are increasingly coming under regulatory attention, revealing how excessive and illogical many of these rules are.
• The anecdote of an inspector demanding to see a snake-pit in a modern office, an archaic and irrelevant requirement, is a glaring example of how outdated regulations can become tools for extortion.
• Similarly, coordinated schemes between consultants and enforcement authorities expose the corrupt underbelly of the system, posing real threats to business growth and entrepreneurial initiative.

Initiative Towards De-Regulation

• Recognising these challenges, the announcement of a high-level committee for regulatory reform in the 2025 Budget is a promising step.
• The committee aims to address what the authors term regulatory cholesterol, the bloated and tangled web of inspections, permits, and no-objection certificates (NOCs) that strangle business activity, especially in low-risk domains.
• A more effective model would be to shift from inspector-led approvals to self-certification for low-risk sectors.
• Lessons can be drawn from best practices within India and Southeast Asia, where third-party certifications and digital processes streamline business compliance.
• For instance, automated systems could be used to grant construction NOCs based on geotagged data, especially for buildings not obstructing flight paths or critical infrastructure.

Further Reforms Required for Sustainable Economic Growth

• Reforming Factor Markets: Land and Labour Reforms
  • Sustainable economic growth also requires reforms in factor markets, particularly land and labour.
  • Land acquisition processes remain complex, with overlapping restrictions and zoning regulations.
  • Simplifying land-use conversion and building byelaws can make industrial land more accessible.
  • Labour laws present a similar challenge. India’s rigid and outdated labour framework is misaligned with the evolving nature of work.
  • In particular, the rise of gig work, a flexible, technology-driven employment model, needs to be acknowledged in law.
  • Current efforts in some states to treat gig workers as full-time employees risk imposing unsustainable compliance burdens on platforms and employers.
  • Instead, a flexible legal framework that protects workers' rights without stifling the economic model is needed.
• Transparency and Procedural Clarity
  • Transparency and procedural clarity are equally critical.
  • All required approvals, documentation, and checklists should be available publicly and online, ensuring that businesses are not caught in discretionary or opaque processes.
  • Regular inspections, where necessary, should be harmonised across departments, notified in advance, and conducted jointly with a single checklist to eliminate redundancy and corruption.
• Cultural Change in Bureaucracy and Performance Metrics
  • Reforms must not be confined to procedures; they must extend to mindset.
  • The prevailing attitude among regulators is one of distrust towards entrepreneurs, treating business growth as something to control rather than enable. Changing this approach requires a cultural shift.
  • One transformative proposal is to include metrics such as investment facilitation and economic development in the performance evaluation of government departments.
  • Such institutional alignment could create a bureaucracy that supports, rather than hinders, business development.

The Way Forward to Repeat 1991 Moment: Microeconomic Reforms for Macro Growth

• Today, while India continues to benefit from stable monetary and fiscal policies, achieving the goal of becoming a developed nation by 2047 requires it to replicate that success through microeconomic reform.
• A sustained growth rate of 8% annually is essential, especially given global headwinds such as trade wars and supply chain disruptions.
• While India cannot control global forces, it can, through domestic deregulation and institutional reform, unlock internal growth engines.
• Removing regulatory bottlenecks and building a business-friendly ecosystem are crucial levers in this regard.

Conclusion

• India's service-led growth model is a testament to its entrepreneurial spirit and adaptability.
• However, realising its long-term economic ambitions will require balanced growth driven by both services and manufacturing.
• That, in turn, necessitates a bold and sustained push to deregulate, digitise, and democratise the business environment.
• India must rise to this 1991-like moment, not out of crisis, but out of opportunity, to shape a truly developed economy by 2047.