Rules 2.0: Rethinking Compliance to Build Trust and Inclusion in India’s Economy

Compliance, at its best, is the scaffolding of an orderly society, the shared code that binds institutions, enterprises and citizens in accountability. Yet, in India today, compliance often feels less like a foundation and more like a maze of obstacles.

In the context of an evolving Indian economy, the question is not whether compliance is necessary, but how it is structured and the unintended consequences it produces. For policymakers, this is neither a call for deregulation nor a lament against governance, but a prompt to appreciate the full spectrum of compliance’s impact — both social and economic.

India’s compliance culture cannot be understood without its history. The colonial administrative legacy was one of control rather than enablement, designed to monitor rather than empower. In the decades following independence, this ethos deepened into the licence raj, where economic participation was mediated by a dense web of approvals, permits and discretionary power. Even as reforms since 1991 dismantled much of this formal architecture, its shadow still lingers in attitudes, processes and institutional memory.

The result is a system where compliance often remains structured around suspicion rather than service. Complexity and opacity are seen as tools of oversight rather than risks that burden the very ecosystem they seek to regulate.

One key challenge is that compliance is not equally accessible. While policymakers recognise this reality, progress towards building a culture of trust remains limited. For large corporations and well-resourced entities, the apparatus of compliance — legal teams, consultants and digital tools — is a manageable, if often burdensome, cost of business. For the small entrepreneur, the self-employed professional or the informal worker seeking formal recognition, compliance becomes a series of gates that are neither intuitively designed nor easily navigated.

Each form, certification and procedural step carries not only a financial cost but also an opportunity cost: time diverted from productive work, revenue foregone, and latent potential left unrealised.

We often speak of the Ease of Doing Business and, indeed, India has made measurable progress in select areas. Yet, the lived experience for many enterprises tells a different story. Globally, India’s reputation suffers from concerns over contract enforcement, delays in judicial resolution and the complexity of routine administrative procedures. What international investors see as risk is often the very environment local entrepreneurs navigate daily. In effect, while laws may appear reformed on paper, their uneven implementation continues to impose both financial and psychological costs.

Perhaps most corrosive is the discretion that remains concentrated in the hands of junior officials at municipal offices, development authorities and regulatory bodies, amongst others. This discretion, combined with archaic procedures and weak accountability, can stall projects, raise compliance costs unpredictably and, in some cases, hold an entire business to ransom in the most literal sense.

The consequence is that compliance becomes less about upholding shared rules and more about negotiating individual approvals, which undermines both efficiency and the spirit of fair competition.

The psychological dimensions of compliance are equally revealing. A system perceived as overly complex or punitive discourages risk-taking and innovation. Fear of inadvertent error, especially when minor lapses attract disproportionate penalties, leads to defensive decision-making. In sectors that should thrive on experimentation and entrepreneurship, this culture of caution constrains both scale and creativity. Compliance, when framed merely as a shield against regulatory sanction, becomes transactional rather than transformative.

Yet the deepest casualty of these dynamics is trust. When citizens and businesses perceive compliance as less about fair regulation and more about navigating arbitrary processes or informal demands, cynicism takes root. Corruption, which remains present across many layers of society, compounds this effect and erodes the belief that integrity alone ensures fair treatment. Over time, the legitimacy of institutions is undermined and compliance becomes seen not as an expression of civic responsibility, but as a negotiation for survival.

Socially, the impact is more layered still. Compliance systems often assume a level of digital literacy, formal education and bureaucratic familiarity that is far from universal. Women entrepreneurs, first-generation business owners and historically marginalised groups encounter disproportionately higher barriers, not because the rules are explicitly exclusionary, but because they are designed for an archetype that remains rare in much of India. In effect, the architecture of compliance can reinforce existing inequities and entrench structural disadvantage.

However, compliance need not inevitably produce these outcomes. Some of the most promising shifts in India’s governance landscape arise precisely when compliance frameworks are reimagined as enablers rather than obstacles. The expansion of digital public infrastructure from Aadhaar to the GST network reflects an ambition to make compliance simpler, faster and less discretionary. When executed thoughtfully, these interventions do not merely lower costs; they restore agency and dignity to those who engage with the system.

The question, then, is how to design compliance regimes that preserve their essential purpose — safeguarding public interest and market integrity — without becoming a tax on participation. Part of the answer lies in simplification: eliminating obsolete requirements, harmonising overlapping mandates and ensuring compliance obligations are proportionate to the scale and risk profile of an enterprise. Equally vital is predictability. When businesses and citizens can anticipate how regulations will be interpreted and enforced, compliance becomes a routine discipline rather than an existential concern.

More profoundly, compliance must be viewed not solely as an administrative process but as a facet of the relationship between citizen and state. A compliance regime that is fair, transparent and empathetic strengthens institutional legitimacy. It signals that the state’s interest is not merely in monitoring but in enabling. Conversely, when compliance is burdensome or opaque, it weakens trust — not just in regulators, but in the broader project of formalisation and governance.

For India, poised between economic ambition and deep social complexity, the decades ahead will bring greater formalisation of economic activity, deeper integration with global markets and an expanding digital footprint. The way compliance is conceptualised and operationalised today will determine whether these shifts unlock widespread prosperity or concentrate it narrowly.

Compliance, at its core, must become a shared pact of trust, not a tax on participation but a catalyst for inclusion, innovation and shared prosperity. For India’s promise to be realised, the rules must evolve beyond control and suspicion to empowerment and engagement.