Lessons from the Canadian experiment
Prime minister Narendra Modi has done well in having a go-getting bureaucrat in charge of his ‘Make In India’ initiative which includes improving the ease of doing business. But incremental changes and a few notches up on the Ease of Doing Business Index is all that Amitabh Kant’s hard work can achieve. What India is looking for, from Mr Modi, is fulfilment of his promise of ‘minimum government maximum governance’; and that will require a radical change.
In that regard, how about following Canada’s example? In April 2015, Canada enacted The Red Tape Reduction Act, making it the only country in the world to control red tape through a legislated ceiling. The Canadian parliament, cutting across party lines, supported the Act, with only one member opposing it. In India, where national interest always takes a back seat, any such move will first be resisted by the privileged bureaucracy and then parliament, because opposing every government move has become the Opposition dharma (no matter which party is in the Opposition). But let us look at what Canada hopes to achieve through this path-breaking legislation.
The Canadian Act is based on the success of a policy adopted by the province of British Columbia (BC) since 2001 with impressive results. In a paper published by the Mercatus Centre, George Mason University, in November 2015, Laura Jones writes that BC reduced regulatory requirements by 43% from the time policy implementation commenced. The paper titled “Cutting Red Tape in Canada: A Regulatory Reform Model for the United States?” explores how this reform model can be adopted by other governments. The first task, says Ms Jones, is to define red tape, as distinct from justified regulation, which is essentially a ‘hidden tax’. Having defined red tape, it important to measure it—by assessing the cost of the broad regulatory burden. Since governments are usually reluctant to quantify the regulatory burden, this task, in BC, was taken up by various academic organisations and advocacy groups.
The Canadian Federation of Independent Businesses, using various survey results, has estimated that the “broad regulatory costs for US businesses are around C$205 billion, while Canadian businesses, far fewer in number, pay C$37 billion a year.” Businesses in the United States and Canada believed that these costs could be reduced by over 30% without affecting the public interest involved in the regulations. Describing how the British Columbian model worked, Ms Jones says, when “the BC government first introduced the Reform Policy in 2001, two regulatory requirements had to be eliminated for every one introduced. At one point, the ratio was five to one, but today the policy calls for eliminating one requirement for every new one introduced. That policy expires in 2019.” The Policy worked, because “it put the onus on the government to make the case that additional regulation was necessary, to ensure adequate consultation, to keep compliance flexible, and to reduce the total amount of regulation.”
Sure, there was a lot of internal resistance when reform aimed at cutting red tape was first introduced, but the government adopted a decentralised approach to ensure cooperation by asking each ministry to work on a business plan with a clear three-year deadline to reduce unnecessary regulation by a third. Extensive consultation with, and involvement of, the private sector through a specific task force also helped. In BC’s case, the deregulation policy was adopted as a part of several measures to boost the economy after the ‘dismal decade’ of the 1990s. The province, says Ms Jones, “went from being one of the worst performing in the country to being among the best.”
What worked for BC was strong top leadership. India, too, has a seemingly strong leader with a clear majority in parliament; but the prime minister has yet to make the shift, from rhetoric to demonstrating the political will to implement radical change. Can Narendra Modi ask each ministry to cut down needless departments, superfluous schemes and meaningless policies by a third? Surely, he can. His Independence Day speech indicated that he planned to lead from the front by dismantling the Planning Commission. NITI Aayog, which has replaced the Commission, has Dr Bibek Debroy as a member. He is best-placed to start the process of axing red tape almost immediately. In 1993, Dr Debroy headed the LARGE (Legal Adjustments and Reforms for Globalising the Economy) project and, later, authored a book titled In the Dock: Absurdities of Indian Law. Burying the absurdities of our laws and regulations will, undoubtedly, be the fastest way to making India an easier place to do business. But implementing real change needs political courage and acumen; does prime minister Narendra Modi have it?