India must embark on a bold deregulation exercise to sustain its economic momentum by cutting red tape and allowing businesses to thrive, according to the Economic Survey, tabled in Parliament on Friday.

The report calls for a shift in governance philosophy — one that steps back from micromanaging economic activity and instead creates an environment in which businesses can flourish.

With global trade slowing and protectionism rising, India, it argues, must rely on its own competitive strengths and remove bureaucratic barriers that stifle investment and innovation.

“The most effective policy that governments —union and states — can adopt is to give entrepreneurs and households back their time and mental bandwidth,” chief economic advisor V. Anantha Nageswaran wrote in the report.

Deregulation, the survey suggests, should not be a one-time exercise but a continuous process — akin to “peeling an onion,” where each layer of unnecessary rules removed reveals further obstacles that become easier to dismantle. “Lowering the cost of doing business through deregulation will be critical in accelerating economic growth and job creation amidst global challenges”.

A dedicated chapter in the Survey urges states to simplify land, labour and business regulations, offering a road map for cutting compliance burdens. The survey calls for shifting the regulatory philosophy from a presumption of non-compliance — where businesses are considered “guilty until proven innocent” — to one that assumes adherence unless proven otherwise.

“The key is to stop micromanaging economic activity,” the report states, emphasising that excessive oversight raises costs, discourages expansion and constrains entrepreneurship.

The compliance burden in India is notoriously high. According to an analysis by TeamLease Services, businesses face nearly 70,000 regulatory requirements, with two in five violations carrying potential jail terms. For micro, small and medium enterprises (MSMEs), this complexity acts as a major hurdle to formalisation and productivity gains.

India’s push for deregulation comes at a time the global economic landscape is shifting. With Western economies slowing and supply chains realigning, India has an opportunity to attract investment and scale up domestic production.

“The need to find growth avenues in an export-challenged, energy-constrained world means deregulation must happen with urgency,” the Survey said, adding excessive regulation discourages private investment, particularly in manufacturing and infrastructure.

Business leaders welcomed the survey’s strong push for deregulation. Sanjay Nayar, president of industry body Assocham, said states must prioritise reforming land and labour laws to drive entrepreneurship and job creation.

“The survey rightly emphasises that reducing regulatory burdens is the first step to unlocking India’s growth potential,” said Chandrajit Banerjee, director-general of the Confederation of Indian Industry (CII).

While the central government has taken steps to simplify taxation, ease labour laws and decriminalise business regulations, the survey puts the onus on states to take further the deregulation process.