There’s a widespread belief that deregulation, as the name appears to suggest, is about the elimination of certain regulations. Eliminate those restrictive provisions with the stroke of a legislative order or an executive decree, and you are all set in the new deregulated world. Unfortunately, while there are some strokes-of-pen deregulations, the vast majority are far from that easy and require sustained engagement.
Urban planning is a fertile ground for stillborn deregulation. The three commonly discussed planning variables are FAR, height restrictions, and land-use restrictions. Deregulation, as is perceived by commentators, would involve raising FAR and height limits, and promoting mixed-use construction, coupled with measures to ease the process of getting the requisite permissions. But this overlooks several layers of small detail that have the potential to derail any deregulation.
For illustration, this is the common building rules of a state government. Even without the Annexures, the Government Order itself runs into 26 pages with several details on setbacks, minimum road width, minimum plot size, parking provisions, open spaces, amenities, fire safety and other compliances. This is a consolidation of all the relevant documents and is more than 370 pages long. As can be imagined, the devil is in the details.
It’s therefore not surprising that some Indian cities that claim to have implemented urban planning reforms, including higher FAR and Transit Oriented Development (TOD), have achieved little in substance. One study of a metropolitan city found that onerous details (in terms of minimum plot size and road width requirements) meant that very few sites were able to utilise the liberalised norms on FAR and height. As aforementioned, given the highly detail-oriented context of the reform, notwithstanding its high-minded objectives, it was dead on arrival.
Another example is the Ease of Doing Business (EoDB) rankings. Its biggest failure was its excessive focus on stroke-of-pen changes to laws/rules. The mere enactment of a legislation or issuance of an executive order to change a process was enough to improve rankings, often significantly. The net result was that EoDB resulted in a lot of performative enactments and decrees, with far less substantive improvements in the actual ease of doing business.
Take the example of the Insolvency and Bankruptcy Code (IBC), hailed as ushering in dramatic improvements in the insolvency restructuring process and contributing to a step change in India’s EoDB ranking. But as the recent Supreme Court judgment on the takeover of Bhushan Steel by JSW shows, effective implementation of the IBC requires addressing the serious deficiencies at the levels of Resolution Professionals (RPs), Committee of Creditors (CoC), NCLT, NCLAT, and the Supreme Court itself.
The form of an IBC does not automatically translate to the substance of an effective and expeditious bankruptcy resolution. It requires painstaking, long-drawn engagement that complements the iteration and refinement of the law itself with the building of capabilities and ecosystem to ensure effective implementation.
In general, while there are some such stroke-of-pen reforms, for most changes, the statutory order is often only the first step in a long journey.
This is a global problem.
Consider two examples from the UK of the challenges with the effective implementation of deregulation. The Labour government in the UK came to power promising to build aggressively and expand the affordable housing supply. One area of focus is the redevelopment of blighted sites.
Britain’s cities contain large tracts of brownfield (ie, underused, previously developed) land, thanks to rapid deindustrialisation at the end of the last century. London alone has some 3,500 hectares (8,650 acres). That is around 25 times the size of Hyde Park, and enough space for more than 400,000 homes (London has a target of around 80,000 new homes a year). Clustered by the canals and rivers that were once industrial arteries, the sites are pretty much the only available land in the city. And yet few are being taken on by developers. Building work for just 1,200 new private housing units started in London in the first quarter of 2025, the lowest since 2009 and just 5.5% of the city’s quarterly target, according to Molior, a consultancy.
But the challenges of building in these sites are immense.
Many borough councils, which largely wield permit power, insist that as many as half of homes in a given development are “affordable”, which immediately rules out smaller sites. At the same time developers are hemmed in by height restrictions and minimum room and unit sizes. From 2026, any building over seven storeys will have to have a second staircase… Some sites, like the former gasworks, require extensive remediation… Ironically, a big problem with ex-industrial plots is biodiversity… Developers must prove that existing biodiversity levels will be increased by 10%, and maintained for 30 years… Such rules illustrate how incentives are skewed. Brownfield developers must go to great lengths to raise the ecological value of derelict, inaccessible sites, often by offsetting. Meanwhile, less environmentally friendly greenfield developments in the suburbs face far lower hurdles.
Another area of focus has been to speed up planning decisions and build on the green belts. But tens of thousands of houses are “stuck in a pipeline because the new Building Safety Regulator is imposing complex design requirements and delaying construction by as much as 18 months.” Then there are mandates on solar panels on all new homes in the spirit of “everything bagel liberalism”.
Even well-intentioned reforms get caught in the regulatory quagmire that ends up stifling or even killing them. In their book Abundance, Ezra Klein and Derek Thompson write,
“In California broadly, and San Francisco specifically, dozens of pro-housing bills have not led to the construction of more homes, in part because those bills are layered with additional requirements and standards that builders must meet in order to take advantage of the newly streamlined processes. For developers we spoke to, the added costs of compliance weren’t worth it, so the legislation hadn’t led them to build any new homes at all, much less build them faster. The breakneck deployment of wind and solar infrastructure and battery manufacturing has been slowed by outdated permitting and procurement rules that split the Democratic coalition.”
If deregulation is (mostly) not about high-level legislative or regulatory enactments, not one-off enactments, and involves detailed executive orders and painstaking iteration, it’s important that the spirit of deregulation must be imbibed by officials.
Governments make laws/rules to govern certain activities that must be regulated in the public interest. In terms of the nature of activities being regulated, regulations broadly cover the issue of statutory certificates, payments and benefits (household cash transfers to industrial policy incentives), municipal and utility services (property tax assessment to electricity connections), licenses and permissions (driving licenses to running a school or hospital to consent for establishment of an industry), procurement processes (eligibility requirements to contract enforcement), and generally compliance with existing laws and regulations (Labour Codes to Companies Act).
These laws/rules have two broad parts: technical guidance and implementation safeguards. The former can consist of a standard (on, say, a technical aspect like safety or efficacy), identification, an eligibility qualification (technical and/or financial) to perform the activity, a legal requirement, or a combination of some or all of these. The latter consists of provisions to prevent abuse of the implementation of the technical guidance (multiplicity of validations). It also includes compliance reporting. While not alone in culpability, many hassles and accessibility problems arise from the latter (implementation safeguard), which applies to the implementation of the enactment.
I blogged earlier here on many of these issues in brief.
Every day, government agencies are issuing orders and notifications across central, state, and local governments. Some norms and principles must restrain this process. All such new orders must be examined with respect to these norms and principles. I’ll present a few below whose spirit must be individually and collectively imbibed within the bureaucracy and polity:
1. The first requirement for any new regulation or condition should be a clear and simple articulation of its objective, identification of the stakeholders impacted, and the manner they will be impacted (in terms of their compliance and reporting). It’s not uncommon to find extra layers of regulation creeping in due to a lack of focus on the objective or trying to cover multiple unrelated objectives. .
2. The second requirement is prudence on the extent of regulation required, which involves a trade-off between objective and practical considerations.
Consider a product or a technology or a process in the private sector. Their regulatory validation is contingent on meeting some threshold for success. Any increase in the threshold would entail significant incremental costs. The cost-benefit assessment deems this threshold acceptable. This also assumes a certain acceptable likelihood of failure, false negative or false positive.
However, in public policy, government agencies often tend to frame guidelines to eliminate any abuse. This leads to tight gatekeeping and access requirements that invariably end up detracting from the objectives. It manifests in the form of enhanced eligibility requirements, additional documentation and certifications, physical verifications, etc. To prevent the likelihood of abuse by 1%, the remaining 99% are penalised with the additional implementation safeguards.
One way to address this problem would be to have a mechanism that requires officials formulating the safeguard to necessarily examine and trade-off between the elimination of abuse and harassment of the stakeholders in an explicit manner, and then make a choice.
3. A third requirement should be that the compliance criteria should be defined with clarity, without leaving it open to interpretation. The flexibility to exercise discretion in the interpretation of a regulation, especially in high-stakes issues, is a recipe for harassment and corruption.
4. A fourth requirement is that the regulation must be formulated with the least burdensome and lowest cost path to achieve the objective. So if there’s an alternative formulation that meets the objective and is less burdensome (or invasive), the same must be preferred.
5. If a regulation/condition is difficult to define and/or monitor and/or enforce, it’s better to eliminate it (if existing) or not enact it at all (if newly proposed). For example, the assessment of the income of a household to issue an income certificate is fraught with problems. Similarly, the requirement of setbacks on small plots (say, less than 200 sq yards) is most often violated and engenders perverse incentives.
6. If a criterion or compliance requirement is so onerous as to be impossible for compliance by all but a few, it’s best avoided. It should be replaced with a second-best compliance requirement.
So, for example, if testing facilities are too few, it’s impractical to mandate the criterion/standard. Or, where compliance reporting burden/cost is prohibitive in terms of transaction costs and can be monitored with reasonable certitude through governance interventions like random sample audits, they should be preferred. Another option is to accept self-certifications and supplement them with random sample audits to ensure deterrence, depending on the stakes involved.
7. The uniform application of a regulation that’s primarily intended for a subgroup must be avoided. For example, if one subgroup poses a risk, it’s best to confine regulation to that group rather than have it applied to everyone. It’s best to have targeted regulations, or have differentiated regulations appropriate for each subgroup, or use governance mechanisms to regulate the subgroup.
8. Governments tend to respond to emerging reports of abuse of the provisions of a law by incorporating additional safeguards that act as a new layer of regulation. This should be done with caution, since while the new safeguard will likely limit the abuse by those few, it will also increase compliance burdens for everyone.
Therefore, as a default, the abuse of a system should be addressed through better governance instead of regulation. Such governance would involve more rigorous monitoring, use of data analytics, digital workflows etc., without adding a new regulatory/compliance layer.
9. On a related note, in general, a very high standard of scrutiny must be applied for any proposal to add to or tighten an existing condition/regulation. They should have a compelling justification that’s recorded by the competent authority.
10. If there are significant and quantifiable costs associated with the regulation, it’s useful to quantify and undertake a cost-benefit assessment. If the stakeholders must bear these costs, it’s useful to also examine how it would impact them (for example, in the case of a business, its business model).
11. Finally, as a principle, the incorporation of any new regulatory/compliance requirement should be accompanied by the easing out of two old requirements.
All of the above can be consolidated into a checklist that can be applied to screen any new regulation/condition that imposes a compliance on an individual or company. Foremost, can the objective be achieved by some other mechanism, which is less invasive or burdensome? Can compliance be monitored and enforced? Is the process for compliance easy and simple? Is the reporting of compliance easy and simple? Are the abuse safeguards onerous? And so on.
On the same lines as for new compliances, any reform involving deregulation should be subject to a similar test on implementation. Does the deregulation achieve its objective in practice? Are there implementation details that are likely to derail its applicability? And so on.
It may be useful for governments to consolidate these principles and issue them in the form of executive directives to guide the formulation and implementation of regulations.