From Inspector Raj to a Modern Regulatory State NITI Aayog’s Push for Reform

India’s Long Battle with Regulation and the Politics Behind It, NITI Aayog’s call for ending licences and permits is bold but it stands on a century-long history of how the Indian state built, justified, and relied on regulatory control.

Introduction: A Radical Proposal with Deep Roots

The recent NITI Aayog proposal to scrap a large number of licences, permits, and NoCs has reopened a long-silent conversation about the nature of the Indian state itself. By questioning why permissions exist at all, not merely how they are administered, the proposal directly challenges the foundational logic on which Indian regulatory power has been built. It is rare for any government institution to argue that its own architecture of control may no longer be necessary, and this rarity is precisely what makes the document historic.

But to fully grasp its significance, one must look beyond today’s headlines. The Indian regulatory ecosystem is not just a collection of outdated rules or bureaucratic procedures. It is the product of a deep historical evolution, shaped by colonial anxieties, postcolonial planning priorities, political incentives, and a persistent belief that governance is most effective when the state grants permission rather than assumes freedom. The NITI Aayog’s call for reform enters this long and layered story as a dramatic intervention, not a sudden disruption.

Understanding this proposal, therefore, requires understanding the system it seeks to reform. India’s regulatory burden did not emerge overnight, nor was it created by a single ideology or administration. It is the cumulative result of a century of governance choices out of which some are born out of necessity, others out of habit, and many out of the state’s desire to maintain discretion. Seen through this wider lens, the NITI Aayog’s proposal is not merely administrative housekeeping; it is a challenge to the historical grammar of governance in India.

A Colonial Legacy of Governing Through Permission

Long before independent India crafted its own frameworks, the British colonial administration introduced the idea that economic and social life must be regulated through permissions. At its core, colonial governance was a project of surveillance and control, justified by the claim that Indians could not be trusted to act without official oversight. Pass systems, registration laws, factory regulations, restrictions on printing presses, and strict licensing for even basic trades became the architecture through which the state maintained order. These were not benign administrative tools but moreover they were mechanisms designed to manage subjects, not empower citizens.

The logic behind these controls was simple that the colonial state equated governance with authority, and authority with the ability to authorise. Moves, gatherings, publications, and commercial activities were viewed as potential threats unless sanctioned. This created a bureaucratic culture in which officials acted not merely as administrators but as gatekeepers of economic and social activity. What began as a set of policies gradually matured into a mindset, a belief that regulation was essential for rule, and rule essential for stability.

Even after Independence, this colonial framework proved too deeply embedded to be dismantled quickly. Administrative structures were retained, and the assumption that the state must approve, regulate, or inspect remained largely unquestioned. New India sought development and equity, but it often did so using mechanisms inherited from a very different political order. Thus, colonial controls were not discarded; they were repurposed.

“Regulation became the language through which the colonial state exercised power and the independent state inherited the language along with the power.”

In many ways, the Licence Raj of later decades was not an invention but an evolution: the extension of a colonial habit into a postcolonial nation trying to build itself with tools designed for control rather than liberation.

A New Republic, Old Instruments

When India became a republic in 1950, its leadership inherited not only a vast bureaucracy but also a governing philosophy shaped by colonial suspicion. The new political class sought to transform an impoverished, unequal society into a modern nation-state, yet the tools they reached for were strikingly familia i.e. permissions, licences, departmental controls, and state monopolies. What changed were the ends, not the administrative instincts.

Jawaharlal Nehru’s embrace of democratic socialism accelerated this reliance on state-led planning. The commanding heights of the economy where steel, railways, coal, power were placed under government ownership. On the other hand, centralised planning through the Planning Commission became the backbone of economic strategy. Investments, capacity creation, and even private sector decisions were monitored through an expanding web of clearances. The political aspiration was emancipatory, but the administrative method remained paternalistic.

This continuity became even more pronounced under Indira Gandhi. The 1969 bank nationalization was moreover intended to direct credit toward agriculture, the poor, and small industries and this strengthened the state’s interventionist posture. Industries requiring licences grew, discretionary power concentrated further, and citizens increasingly interacted with the state through applications, inspections, and approvals. This very nationalisation symbolised a promise of equity, but it also cemented dependence on bureaucratic gatekeepers.

“Independent India recast its aspirations, yet it continued to operate through administrative habits that were unmistakably colonial in origin.”

The promise of social justice was pursued through mechanisms that treated economic activity as a privilege to be granted rather than a right to be facilitated. Instead of dismantling the colonial regulatory edifice, successive governments deepened it, often in the name of development.

By the time liberalisation arrived in 1991, the system had produced both economic stagnation and administrative fatigue. Yet even after reforms, the instinct to rely on clearances, compliance checklists, and procedural surveillance persisted. Political goals shifted across decades, but the instruments of control remained one of the most durable legacies of the postcolonial state.

When Regulation Turns into Dependence

As we discussed, no doubt regulation is essential to protect public health, safety, and the environment, and licences and standards play a critical role in ensuring that hospitals, laboratories, and industries operate responsibly. Yet over decades, India’s regulatory ecosystem has grown complex and overlapping, creating a system in which compliance itself can become a source of dependence rather than facilitation. Businesses, service providers, and citizens often find themselves navigating multiple authorities and approvals, even when the regulations themselves are necessary and justified.

The challenge is not the existence of regulations as these are essential for safety, quality, and accountability, but the way they are structured and administered. In many sectors, including healthcare and manufacturing, approvals, inspections, and reporting requirements often overlap across central, state, and local authorities. Organizations must invest significant time and effort to manage these procedures, coordinate with multiple departments, and maintain extensive documentation. While these processes are necessary, they can draw resources away from innovation, efficiency, and core operational improvements. Over time, this complex web of procedures has created a form of dependence, where success often depends as much on navigating bureaucracy as on delivering quality services or products. The multiplicity of approvals and the associated delays can also create opportunities for corruption, as businesses may feel pressured to make informal payments or favors to expedite necessary processes.

“Even as policy goals evolved over the decades, the state’s instinct to govern through permissions and controls remained deeply embedded in its institutional DNA”.

NITI Aayog’s recent regulatory-reset proposals address this reality by recommending simplification, rationalisation, and risk-based supervision. The report identifies over 200 product-related Quality Control Orders for review and suggests replacing overlapping licences and inspections with self-certification and third-party verification for low-risk activities. The aim is not to remove necessary safeguards, but to reduce administrative burden and enable enterprises to operate efficiently while maintaining compliance, safety, and accountability

Reform Without Reinvention: The Post-1991 Puzzle

Even after the economic liberalisation of 1991, multiple licences, permits, and inspections remained in sectors critical to public safety, the environment, and local governance. For instance, industrial units often require prior Environmental Clearance (EC) from the central government, alongside state-level Consents to Establish (CTE) and Consents to Operate (CTO) under the Air and Water Acts. Hazardous-waste management, biomedical waste disposal, and fire safety frequently require additional approvals from separate authorities, creating overlapping obligations. While these regulations are necessary to protect health, safety, and the environment, the fragmentation across central, state, and municipal authorities often produces procedural complexity, duplication, and delays like even after EC is granted, projects can face significant delays due to pending forest clearances, local municipal approvals, or state pollution board consents. A study by the Council on Energy, Environment and Water (CEEW) found that for sectors such as mining, hydropower, coal, and large infrastructure, a significant share of projects filed even a decade ago still await forest-land approval; in many cases delays exceed 940 days. Similarly, NITI Aayog has cited reports showing that environmental clearances for chemical-industry projects now take an average of 451 days which is almost twice the legally prescribed timeframe.

This created a hybrid system like on paper, enterprises could operate freely but in practice, they still faced multiple approvals, inspections, and reporting requirements across central, state, and local authorities.

“Navigating bureaucratic maze could take time, money, and managerial focus away from innovation, efficiency, or improving core services.”

The legacy of pre-1991 controls persisted. Many regulations from the planning and socialist era were not repealed and instead, they were repurposed or rebranded. Businesses operated in a dual world: competing in open markets while simultaneously negotiating a complex web of approvals and permissions. Overlapping jurisdictions and discretionary powers meant delays were frequent, and discretionary enforcement created opportunities for informal payments.

Consequently, post-1991 reforms delivered mixed results. While macroeconomic growth accelerated and some central-level licensing barriers were removed, the fundamental dependence on bureaucracy persisted. A 2025 report by TeamLease RegTech found that a typical manufacturing MSME in India still faces over 1,450 regulatory obligations annually, spanning labour laws, environmental approvals, safety norms, tax filings, and interactions with multiple inspectors. Compliance costs for such firms are estimated at ₹13–17 lakh per year, resources that could otherwise be invested in innovation or operational improvement. As a result, firms often succeed as much by navigating bureaucratic procedures as by producing quality goods or services. The structural inertia of the system, with overlapping, duplicative, and time-consuming approvals, limited the full impact of liberalisation and left many of the state’s old instruments intact.

The NITI Aayog Moment: A Push to Rewire the State

The current 2025 NITI Aayog committee has proposed a bold overhaul of India’s regulatory framework, recognising that decades of procedural overlap and excessive inspections have created unnecessary friction for businesses.

“Regulations should enable growth, not be an obstacle to it”

The report notes, reflecting a shift towards trust-based, risk-sensitive governance. The committee’s recommendations aim to reduce the reliance on licences, permits, and inspections that have long defined the “inspector-raj,” while retaining safeguards for public safety, health, environment, and strategic interests.

Key elements of the proposal include:

1. Risk-based and graded approvals: Only activities posing significant risk would require prior approvals, while low-risk operations could move to self-registration.

2. Streamlined inspections and licences: Redundant licences would be scrapped, and inspections would be risk-targeted, reducing duplication across central, state, and local authorities.

3. Digital transparency and perpetual validity: Licences could have long-term validity with compliance tracked digitally, enabling faster approvals and minimising opportunities for delays or discretionary intervention.

The initiative represents one of the most ambitious efforts since liberalisation to modernise India’s regulatory state. By prioritising trust, efficiency, and accountability, the NITI Aayog proposals aim to enable businesses to focus on innovation and growth rather than navigating procedural bottlenecks. If implemented effectively across all levels of government, this overhaul could reduce corruption-prone discretionary approvals, revive entrepreneurial energy, and align India’s regulatory system with its economic and developmental goals.

Conclusion: Ending the Cycle of Control

India stands today at a unique juncture. For the first time in decades, a central government body is not simply easing rules but questioning the purpose of rule-making itself. The NITI Aayog proposal frames regulation not as inevitability but as choice.

Yet, real change will depend on recognizing a deeper truth: India’s regulatory burden is not only an administrative problem; it is a political legacy. A culture forged by colonial control, reinforced by developmental planning, and perpetuated by discretionary governance cannot be undone by deleting checkboxes alone.

The challenge, therefore, is two-fold, i.e., to remove unnecessary rules, and to reimagine the relationship between citizens and the state.

If India succeeds, it will not merely end licences and permits but moreover it will end a historical pattern of governing through control and that is why the NITI Aayog proposal, with all its ambition and imperfections, marks a defining moment. It begins a conversation that brings India full circle: from a colonial state of permissions to the possibility of a post-permission Republic.

It is where this story began and where it must end.

Download