Imperative to Wipe Out Trust Deficit, ‘Get Out of the Way’ & Deregulate, Says Chief Economic Advisor (CEA)

Feb 1, 2025

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Chief Economic Advisor (CEA) V. Anantha Nageswaran calls for eliminating the trust deficit between the government and private sector, urging for deregulation and a shift to risk-based policies to boost economic growth.

Imperative to Wipe Out Trust Deficit, ‘Get Out of the Way’ & Deregulate, Says Chief Economic Advisor (CEA)

In the wake of India’s economic recovery post-pandemic, Chief Economic Advisor (CEA) V. Anantha Nageswaran has made some compelling remarks regarding the structural changes needed to bolster the country’s growth trajectory. In his recent observations, Nageswaran stressed the urgency of addressing the "trust deficit" that has plagued India’s economic ecosystem, especially between the government and the private sector. He made it clear that it was imperative to not just reduce bureaucratic barriers but also place greater trust in economic participants. A vital component of this vision is deregulation—a step towards creating a more business-friendly environment that encourages entrepreneurship, innovation, and economic growth.

The Trust Deficit: A Barrier to Growth

At the heart of Nageswaran’s message lies the call to eliminate the trust deficit that exists between the government and private enterprises. Over the years, businesses—especially micro, small, and medium enterprises (MSMEs)—have voiced concerns about the regulatory burden and excessive bureaucratic interference. This lack of trust, according to Nageswaran, creates an atmosphere of suspicion, where the government imposes numerous checks and controls on businesses, often hindering their growth.

For businesses to flourish, Nageswaran argued that the government must establish a more collaborative relationship with the private sector. He emphasized that the current model, where the government places too much emphasis on micromanaging and controlling economic activities, is unsustainable. "We need to get out of the way," he stated, advocating for a reduced role for the state in the day-to-day operations of businesses. Instead, government agencies should focus on creating an environment where businesses can thrive independently. This would include fewer regulations, clearer guidelines, and a general shift towards risk-based governance instead of an overly cautious, rule-heavy approach.

Deregulation: Unlocking Growth Potential

A significant pillar of Nageswaran’s call for reform is deregulation, which he believes is essential for fostering a thriving economic environment. In his view, the Indian economy is burdened by a complex web of regulations that are often outdated, inconsistent, or disproportionately affect smaller businesses. By easing these restrictions, Nageswaran believes that entrepreneurship will be unleashed, particularly within the MSME sector, which is a critical driver of job creation and innovation.

According to Nageswaran, deregulation is not just about removing red tape; it’s about replacing outdated processes with more efficient, transparent systems that support businesses. He pointed to the fact that excessive regulation can discourage new startups from entering the market, creating a barrier to entry for entrepreneurs with innovative ideas. On the other hand, if the government allows businesses to function with greater autonomy, it could unleash the full potential of sectors such as manufacturing, technology, and services, leading to sustained economic growth.

This approach, however, does not mean total abandonment of regulatory oversight. Nageswaran clarified that the role of government agencies will still be critical in ensuring fair competition, protecting consumer rights, and maintaining financial stability. What he advocates for is a streamlined, effective regulatory framework that offers flexibility and reduces the burden on businesses without compromising on key regulatory functions.

The Role of Government: More Trust, Less Interference

For Nageswaran, the crux of India’s future growth hinges on rebuilding trust—not only between the government and private sector but also within various branches of the government itself. The Economic Survey highlights that India’s economic policies must shift from a model of control and supervision to one that relies more on self-regulation and trust-based governance.

The CEA emphasized that it is crucial for government entities to trust businesses and allow them to manage their affairs without excessive intervention. This approach would not only lead to more efficient operations but also create a positive feedback loop, where private enterprises, in turn, would place more trust in the government and support broader policy objectives. Nageswaran argued that the role of government should be to create an enabling environment for businesses and not to hinder their growth through an overbearing regulatory structure.

However, this doesn’t mean that businesses should be given free rein without any accountability. According to Nageswaran, trust is reciprocal. While the government must reduce interference, the private sector must uphold ethical standards and demonstrate responsibility. In this new framework, businesses will be trusted to adhere to norms and regulations that ensure consumer safety, environmental protection, and economic sustainability.

The Call for Risk-Based Regulations

One of the key aspects of Nageswaran’s vision for deregulation is the idea of "risk-based regulations." Rather than a blanket approach to regulation, which treats all businesses the same regardless of their size or impact, the government must adopt a model that adjusts its regulatory approach based on the level of risk a particular activity presents. This means that smaller businesses or startups with lower operational risks would face fewer and less stringent regulations compared to larger corporations operating in high-risk sectors.

Nageswaran pointed out that the deregulation approach should be implemented not only at the central level but also at the state and local government levels. Coordination across all levels of government will be crucial in achieving employment and manufacturing goals, two key pillars for fostering job creation and long-term economic stability.

A Paradigm Shift for the Future

In conclusion, Nageswaran’s remarks paint a picture of a more dynamic, less regulated economy. The government's role, he suggests, should shift from being a direct participant in economic activities to that of a facilitator. By eliminating bureaucratic barriers, embracing deregulation, and placing greater trust in the private sector, India can unleash its economic potential, which will help drive job creation, attract foreign investment, and increase overall competitiveness on the global stage.

As India continues to recover and grow, Nageswaran’s calls for reform are a reminder of the importance of adapting policies to the needs of the modern economy. Trust-building between the government and businesses, along with the promotion of a more flexible regulatory environment, could be the key to ensuring that India remains on its path to becoming a global economic leader.

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