Damodar Committee Report on Reforming the Regulatory Environment for Doing Business in India
If all you have is a hammer, everything looks like a nail! Such are the concerns relating to raising economic growth that everything in the business environment seems to be a candidate for reforms. Reforming the business environment has proved to be a Sisyphean construct that governments across the globe, including India, are rolling up the hill.
In the Indian context, the landscape of regulatory environment is primarily an outcome of the division of subjects, where the Union and the State governments could frame laws, as provided in the Seventh Schedule of the Constitution of India. This maze is further thickened by the plethora of laws and regulation therein, which have simply failed to keep pace with time. Therefore, the Committee took a serious note of the problem of ‘stock’ and ‘flow’ of the regulations, which are overdue now for review and consequential amendments, wherever required. The Committee also observed that a large part of problem emanates from the way the appointments in the regulatory agencies, and also the organizational structure, are made and held. On this count infusing professionalization through right selection and capacity building are the key issues, the Committee chose to focus on.
The Committee also felt that the use of information technology (IT) can be one possible solution wherever information asymmetry adversely impacts the regulatory environment. More effective use of IT can address multiple problems such as access to correct information, exchange of best practices and so on.
While enterprises above a threshold may have the wherewithal to deal with the complex business environment, the Committee looked into the issues of small and medium enterprises and felt that greater coordination amongst ministries and the policy makers is the need of the hour.
The Committee was set up in response to the ‘Doing Business Report, 2012 (DBR)’ of the World Bank. The Report placed India at low ranks in almost all parameters. Incidentally, the DBR has now covered full circle – after it started with the original paper published by Djankov et al1 in 2002. In the original paper Djankov et al remarked that “Countries with heavier regulation of entry have higher corruption and larger unofficial economies, but no better quality of public or private goods. Countries with more democratic and limited governments have lighter regulation of entry.” What started as measurement of ‘regulation of entry’ assumed the shape of a comprehensive ranking of nations reflecting the ‘ease of doing business’ in due course. This led to several countries raising questions regarding the usefulness of the report. It so happened that World Bank itself appointed a panel to review the report, which recommended discontinuing the cumulative ranking of countries and retaining publication of the individual parameters. This is a major turning point in the decade old journey of ‘Doing Business Report’. Be that as it may, what is beyond debate is that the issues relating to India’s business environment are real and need to be resolved.
This Report is directed towards the issues of structural significance. It is hoped the recommendations of the Committee will prove to be an important milestone in the journey of reforming India’s regulatory environment for doing business.