THE ROAD TO REGULATORY REFORM

The prevailing attitude of regulators towards business remains one of distrust. This bureaucratic attitude needs to be transformed into one of trust

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India is unique among emerging economies, as its growth has been driven primarily by services rather than manufacturing. If you take a cross-section of the Indian economy from 1980 until now, the share of manufacturing in India's gross value added has crept up marginally, from 16% to 17.5%. The share of services, however, has gone up dramatically, from 33% to 55% of India's gross value added.

What accounts for this unique feature of the Indian economy? The answer is that the brunt of economic regulation has fallen on manufacturing, as the factory rather than the call centre or software firm is seen as the archetype of industry. Services, by contrast, have been less exposed to regulatory attention.

That, however, is changing, as the growth of services brings them into the limelight. To recount some experiences in this regard: a few years back, an inspector visited a modern office of a service sector company run by one of us and demanded to see the snake-pit (meant to trap snakes). Arcane regulations mandate that all establishments have one. Recognising that hardly any observe this stipulation in practice, he indicated that the demand could be made to go away for a consideration.

On another occasion, when the second floor of an authorised office was being fitted out, a consultant assured us there would be no problem if we installed electric connections. When we did so, however, the same consultant arrived with the police, wanting to arrest the owner for violating regulations. It was evident this was an extortion ring run in cahoots with local authorities.