President Trump’s 50% tariff threat on Indian exports in mid-2025 sent shockwaves through Indian’s power elite. Policy-makers, business leaders and economists say it is a wake-up call: India must act decisively—or risk losing ground in the global economy.
Former NITI Aayog chief executive officer (CEO) Amitabh Kant believes that the crisis could be a ‘once in a generation opportunity’ for reform. Mahindra group chairman Anand Mahindra suggests that the current ‘global churn’ is an opportunity to extract ‘amrit’ from the adversity through bold reform. Suggestions include radical improvements in the ease of doing business, a fully functional single-window clearance system for investment proposals, lower levies to make exports globally competitive and accelerated reforms in tourism and issuance of visas.
On 15 August, prime minister (PM) Narendra Modi responded with a 103-minute Independence Day speech that spoke about what his government had already done to reduce compliance requirements and announced a task force to review laws, rules and policies to align with the vision of Viksit Bharat by 2047. He also promised massive job creation (35 million jobs in two years), long-overdue steps to reduce the burden of the goods and services tax (GST) on everyday goods by Diwali (October) and faceless, centralised assessments to improve adjudication.
This is a good development, but India has always had a yawning gap between vision and execution and an unwillingness, especially by the bureaucracy, to understand the pain points of businessmen and citizens alike, even when the evidence is staring them in the face.
Mass consumption is slowing due to lower real incomes (since wage growth lags inflation) and, therefore, demand for personal-care and consumer products have weakened, made worse due to high input costs. Wealth inequality has widened, with the richest 1% holding over 40% of national wealth and the Gini coefficient rising. Energy dependence, uneven progress in pharmaceuticals research & development (R&D) and ambitious, yet unrealised, defence manufacturing goals illustrate the difficulty of translating long-term plans into tangible outcomes. Businesses and citizens face a cumulative burden of taxes, cesses and tolls and rising costs while quality of life is worsening. The software sector, once a big employment generator, is laying off people after years of stagnant entry-level salaries. But the bigger problem lies elsewhere.
India needs drastic action to strengthen institutions, reduce regulatory friction, arbitrary enforcement action, judicial bottlenecks and, above all, tackle public and private sector corruption which has become a way of life. This needs change in four key areas.
Compliance Burden
India’s ‘Ease of Doing Business’ rank improved from 142 in 2014 to 63 in 2020; yet, start-ups and micro, small and medium enterprises (MSMEs), which are a crucial driver of growth and contribute 30% of gross domestic product (GDP), are suffocating under regulatory burdens.
A recent report by TeamLease RegTech says that a typical manufacturing MSME with a single unit in one state is subject to over 1,450 compliance obligations annually, cutting across seven categories of law. These include 59 types of inspectors for different requirements, 48 different registers and 486 imprisonment clauses, many for procedural lapses.
There is a steep cost to these compliances which is estimated at between Rs13 lakh to Rs17 lakh per annum. This is a strain on smaller enterprises with limited resources and in-house expertise and it saps profitability, growth, innovation and employment generation. Even non-for-profit organisations (NGOs) and social enterprises are reeling under the burden of compliance, made worse by the fact that the reporting machinery remains archaic and unaccountable.
Enforcement Overreach
An equally worrying aspect to doing business in India is the ‘friction tax’ imposed by a combination of coercive regulatory practices and deep-rooted corruption. Enforcement overreach through multi-agency actions such as freezing of bank accounts, raids, joint investigations and arrests even before an indictment has been normalised. There are innumerable and credible reports about officials from regulatory bodies demanding large sums of money to avoid harsh orders. Evidence to back this, comes in the form of flimsy and contrived cases (insider trading) that are knocked out on appeal, but not before inflicting serious reputational damage and legal costs.
The proliferation of multi-agency enforcement actions, often based on a lack of understanding or creative interpretation of business dealings, adds another layer of risk. A single complaint can trigger investigations by multiple authorities. This ‘gunboat’ approach to enforcement may be worsened by new legislation such as Digital Competition Bill; but the government reacts defensively to all legitimate concerns. It responds only to a public outcry on social media, often with too little, too late.
The ‘shoot-first’ approach has not even spared start-ups funded by risk-taking angel investors. In one high-profile case of ‘angel tax’, the accounts of food delivery platform Travelkhana were frozen in 2019, forcing the company to pay an arbitrary, Rs36 lakh tax demand. Another start-up, SchoolDiary, faced a Rs20-lakh tax demand, triggering industry-wide outrage and the hashtag #ShutDownIndia. The tax, introduced in 2012 was finally abolished in the budget of 2024.
Entrepreneurs frequently recount instances of harassment and threats from officials under pressure to meet collection targets. This ‘tax terrorism’ discourages businesses from formalising, forcing them into the informal economy where they lack access to credit and growth opportunities.
Tackling Corruption
In addition to maddening compliances and their costs, the single biggest block to ‘Ease of Doing Business’ is rampant corruption. It is higher and more extortive in government but equally prevalent in the private sector. The latter is best illustrated by a finding of PwC Global Economic Crime Survey 2024 that 59% of Indian organisations had faced economic fraud in the previous two years.
A 2024 survey by LocalCircles found that 66% of businesses had paid bribes in the past year, with many feeling compelled to do so ‘to get the work done’ or ‘for timely processing’. Almost everyone has experienced this in the realty sector, where automation has only increased the efficiency and volume of graft.
From local officials to high-level administrators, corruption drains resources, misallocates funds and undermines public service delivery. Aadhaar and digitisation were supposed to eliminate the massive leakage in delivery of social benefits and subsidies. But ghost beneficiaries in MGNREGA, rural health programmes and the massive scholarship and appointments scams in several states reveal that technology can also enable 100% leakage and make it far more difficult to detect.
Although India’s shadow economy has shrunk over time to 20% of GDP, it continues to thrive because systemic loopholes and backdoors are built into the best systems to allow illicit funds to be parked. This is unlikely to change until election funding remains non-transparent and is fed by business and industry in exchange for dubious benefits.
Judicial Gridlock and Contract Risks
The glacial pace of justice is a major bottleneck for India's development. Civil disputes, including crucial contract enforcement cases, can drag on for decades, discouraging domestic as well as foreign investment. India ranks 163rd out of 190 countries for contract enforcement.
As of early 2025, the Supreme Court alone had over 82,000 pending cases, with millions more languishing in high courts and district courts. The sheer volume is compounded by a severe shortage of judicial manpower. With a meagre 21 judges per million people, India falls far short of the Law Commission's recommendation of 50 per million, creating an impossible situation. The special court in Mumbai set up for the trial of cases related to the Securities Scam of 1992 is continuing to do so after over 32 years!
The judicial system also presents another concerning paradox. Our courts, at all levels, demonstrate remarkable swiftness in admitting and addressing matters of seemingly less public importance when it pertains to celebrities or comes under the head of ‘hurting public sentiment’.
Even the landmark bankruptcy legislation of 2016, touted as the path to rapid corporate resolution, is set for a huge overhaul in just over a decade, after allegations of manipulation, corruption, collusion between debtors and creditors, fabricated debts, antedated loan agreements and long delays in resolution. The national company law tribunal (NCLT) and its appellate body have repeatedly identified fraudulent applications used to sideline legitimate shareholders or evade liabilities.
Add it up: compliance overload, tax harassment, regulatory overreach, rampant corruption, judicial inefficiency, flawed bankruptcy enforcement, together, form a massive block to achieving the Viksit Bharat dream.
India will not become a developed nation based on ambitious rhetoric amplified on order by industry bodies or paid influencers. Simplified GST will lead to a loss of revenue that will have to be offset by cut in extravagant government spending. A reduced compliance burden and better processes will only happen if there is a war on corruption and judicial reforms. The journey from rhetoric to reality will require a relentless focus on these fundamentals. But can we see any concrete time-bound plan to do so?
The basic problem is that the senior officers in most of the departments and in the judiciary have been trained and promoted during the INC rule in the country. So these people believe bribe is their right as we saw in case of Justice Varma. Hence many are not cooperating and some are blatantly opposing the policy of clean governance. May be it will take few more terms of honest and nation first leader to clean p the system. Judiciary seems to be hand in glove with the corrupt, thanks to the lawyers who run to the Supreme court whenever a corrupt or guilty politician or a criminal is in the dock to get a bail.
I totally agree with all that you have listed here.
I have personally encountered having to pay a bribe once. I sold my house in Pune and to get the paperwork done in a timely manner, so that I do not have to return to India from abroad simply to sign on some paper, I had to pay a bribe.
The second instance where I have encountered inordinate delay is to close down a charitable organization that my husband and I had established in the 1990s. The organization has less than 10 lakhs in funds, yet it has taken 5 YEARS and ongoing, just to close it down. I have engaged a chartered accountant whose main work deals with charitable trusts, so he must know what he is submitting. Even then, the Charity Commissioner's office has repeatedly postponed the hearing for 5 yrs and counting.
This harassment makes people leery of doing any good for society through NGOs.
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Access is given for all articles published during the week (starting Monday) your subscription starts. For example, if you subscribe on Wednesday, you will have access to articles uploaded from Monday of that week.
This means access to other articles (outside the subscription period) are not included.
Articles outside the subscription period can be bought separately for a small price per article.
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I have personally encountered having to pay a bribe once. I sold my house in Pune and to get the paperwork done in a timely manner, so that I do not have to return to India from abroad simply to sign on some paper, I had to pay a bribe.
The second instance where I have encountered inordinate delay is to close down a charitable organization that my husband and I had established in the 1990s. The organization has less than 10 lakhs in funds, yet it has taken 5 YEARS and ongoing, just to close it down. I have engaged a chartered accountant whose main work deals with charitable trusts, so he must know what he is submitting. Even then, the Charity Commissioner's office has repeatedly postponed the hearing for 5 yrs and counting.
This harassment makes people leery of doing any good for society through NGOs.