The 2025-26 Budget reflects how regulatory reform is at the heart of economic progress. The journey of policy thinking on regulation reflects a maturation of India’s policy landscape. This evolution marks a step forward toward ensuring that regulatory frameworks serve their intended purpose without imposing undue burdens on businesses and investors. Now that the Economic Survey and Budget Speech have acknowledged its importance, we have to walk the distance on the actual reform.
Regulatory reform in the Budget
The emphasis on regulatory reform aligns with the broader themes of the Economic Survey released on 31 January. The Survey highlighted that outdated rules and bureaucratic red tape are a major drag on productivity, stifling innovation and discouraging investment, and India’s economic growth will be best served by deregulation.
The Budget has announced the mechanisms that can bring the idea in the Economic Survey to life. The first is a high-level committee for regulatory reforms. The committee will be tasked with the review of all non-financial sector regulations and submit a report within a year. A parallel mechanism under the Financial Stability and Development Council (FSDC) will evaluate the impact of financial sector regulations and subsidiary instructions. Together, these moves signal the first step toward a re-evaluation of India’s regulatory architecture. India responded to the license raj through the 1991 liberalisation reforms. The Budget signals that it is now waking up to the “regulatory raj” that often places excessive compliance burdens on regulated entities and to the unintended consequences of its frameworks.
Regulatory reform becomes mainstream
The notion that policy decisions and executive actions by the government in areas ranging from education to water, oil and gas to manufacturing have disproportionate impacts were well understood by the 1980s. It was also widely understood that the footprint of government needs to become lower in areas where it creates unnecessary friction and rent-seeking avenues. This, in some ways, was the genesis of the liberalisation agenda in 1991.
The 1991 reforms created another institutional structure called the “regulator”. Regulatory agencies have come to dominate various sectors ranging from finance and airports to telecom and electricity. Over time, the evidence of the difficulties of the functioning of these institutions began to mount. Similarly, sectors that did not have a separate regulator but were managed by the parent ministry or department, continued to languish under outdated regulations and poorly thought-out executive actions. However, there wasn’t yet a full-blown consensus on how regulatory actions—by a regulator or a ministry—can impede economic outcomes.
The first large-scale attempt at systematic regulatory reform was made by the Financial Sector Legislative Reforms Commission (FSLRC) in 2013. At the time, even the ideas of reviewing regulatory actions, mandating a cost-benefit analysis before regulations were issued, and placing constraints on regulatory authorities were seen as heretical. The FSLRC’s recommendations sought to introduce a structured approach to regulation, ensuring that oversight did not become an impediment to innovation and economic growth. The idea that one needs regulatory reform has gradually gained mainstream acceptance.
Aspects of regulatory reform
If the idea that regulatory reform is critical has been accepted, the next step lies in arriving at a consensus on what constitutes meaningful regulatory reform. The work over the past ten years offers three solutions.
The first is the structure and composition of the regulator—who the members are, how they are appointed, the powers and responsibilities they wield, their budgets, and the balance between their independence and accountability. A well-designed regulator must be autonomous enough to act without undue political interference, while maintaining accountability to the public and legislative bodies.
The second aspect concerns the checks and balances on regulators’ legislative and executive mandates. Regulatory bodies often function as quasi-legislative authorities, drafting and implementing rules that have a significant impact on economic activity. The legislation must require regulators to conduct rigorous impact assessments before promulgating regulations. Impact assessments require an understanding of the root cause of the problem, and due consideration of whether a regulatory intervention is even desired. Further, stakeholders should be given adequate time to respond to proposed regulations, and their feedback should be genuinely considered. On the executive side, actions such as licensing and inspections must adhere to due process, ensuring that regulatory authorities do not act arbitrarily or disproportionately.
The third aspect relates to the separation of executive and adjudicatory functions within regulatory bodies. A regulator that simultaneously drafts rules, enforces compliance, and adjudicates disputes risks becoming judge, jury, and executioner—an arrangement that undermines fair play. Proper mechanisms must be established to separate these functions, allowing for independent adjudication and meaningful avenues for appeal. Ensuring such separation enhances trust in regulatory institutions and prevents conflicts of interest.
The current Budget statements have implicitly acknowledged the intellectual and policy foundations laid by scholars, practitioners, and policymakers who advocated for regulatory reform in an era when such ideas were considered radical.
The committees established under the Budget must go beyond merely assessing existing regulations; they should critically evaluate the structural design that shapes regulatory behaviour. For example, what is required is not only a review of SEBI regulations, but a rethinking of the legislative, executive and adjudication processes, that get encoded in the SEBI Act. Without addressing the underlying legal framework, reforms risk tackling symptoms rather than causes.
Renuka Sane is managing director at TrustBridge, which works on improving the rule of law for better economic outcomes for India. She tweets @resanering. Views are personal.
(Edited by Theres Sudeep)