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An economy does not taxi its way to scale on its own. For it to take off, regulators must sit in the cockpit, not in the cargo hold — visible, steady, and above the turbulence.
India’s growth story, for all its entrepreneurial energy and macro ambition, is increasingly constrained not by capital, labour, or ideas, but by regulation that is late, timid, captured, or incoherent. As India grows beyond a 4 trillion dollars economy, the regulator — not the entrepreneur — has become the choke point.
This is not an argument for more, but better regulation: credible, predictable, empowered, and seen to act. Markets can tolerate tough rules. What they cannot do is arbitrary enforcement, silence in crises, or the suspicion that referees are for sale. Confidence, once lost, taxes growth long after balance sheets recover.
Power trip
Consider electricity: Power generation increased from 1,168 billion units (BU) in 2015-2016 to an estimated 1,824 BU in 2024-2025. Yet, there are brazen regulatory shortfalls. The Central Electricity Regulatory Commission (CERC)’s attempt at ‘market coupling’, ostensibly to improve price discovery across power exchanges, was mishandled from the start. Poor consultation, opaque reasoning and abrupt timelines rattled a sector already balancing renewable integration, State utility bankrupt finances, and private investment risk.
The episode worsened when allegations surfaced that the process was under an insider-trading cloud. Whether or not wrongdoing is proven, the damage is done. Institutions meant to referee markets appeared too easy to buy — or bully — off. Power markets price long-term risk. Regulatory credibility is the premium. India just made it costlier and with dishonourable intentions.
DGCA’s delay
This is not an aberration. In aviation, a fast-growing sector where safety margins are unforgiving, the Directorate General of Civil Aviation (DGCA)’s handling of the IndiGo episode revealed a watchdog reduced to a spectator: slow, timid, and reactive.
The regulator spoke after the turbulence, not before; nudged when it should have enforced; and appeared more comfortable issuing advisories than asserting authority. In markets expanding at double digits, delay is distortion. When regulators arrive late, speak softly, and leave early. They appear to tilt the playing field in favour of one side; and they leave markets messier than before.
A disturbing pattern
Capital markets offer their own cautionary tale. The NSE co-location scandal — where preferential access allegedly allowed select traders to profit unfairly — festered for years before decisive action. The delays directly displayed regulatory capture and institutional diffidence. SEBI eventually acted, but time eroded trust. Investors remember not only outcomes, but elapsed years. Enforcement that limps invites cynicism, and cynicism raises the cost of capital.
The pattern repeats across sectors. Rules are drafted without rigorous impact analysis, consultations are box-ticking exercises, enforcement oscillates between lethargy and spectacle, and accountability is diffused. India has no shortage of honest, and capable people for regulatory roles.
The deficit lies in institutional design and incentives. Regulators are often underpowered, politically exposed, procedurally clogged and personally vulnerable. When authority is ambiguous and tenure insecure, discretion becomes the currency. That is how capture creeps in — not always through bribes, but through pressure, delay, and exhaustion.
It’s possible
This matters now more than ever. India’s next phase of growth depends on complex sectors: stock markets, disinvestment, electronic manufacturing, fintech, agro-processing, among others. They require regulators who can anticipate risk, enforce proportionately, and course-correct in real time. Growth without regulatory competence will only be a sellout, and eventually lose momentum.
Yet, India’s experience also shows that where political will exists, regulators can deliver. The Reserve Bank of India (RBI) stands out. Over the past decade, it has improved financial stability and credit quality. Gross non-performing assets have continued to decline, reflecting healthier bank balance sheets, and stronger risk management. This was achieved by insisting on recognition of stress, pushing recapitalisation, tightening supervision, and professionalising oversight. The result: a banking system better able to support growth and assess risk.
The RBI has also shown flexibility when conditions demanded it. As growth slowed, it reduced benchmark interest rates, shifting towards an accommodative policy to support credit flows and economic momentum.
Insurance regulation offers another instructive example. The Insurance Regulatory and Development Authority of India (IRDAI) has quietly modernised its approach. By rationalising and streamlining rules — shifting towards principle-based frameworks — it has fostered ease of doing business, attracted new entrants, and encouraged product innovation and competition. The sector is broader, deeper, and more resilient as a result.
Equally important, the IRDAI has strengthened enforcement and consumer protection tools. Legislative empowerment has improved its ability to protect policyholders and curb non-compliance. The signal matters: rules exist, and they will be enforced. That credibility lowers friction, and expands trust.
An execution crisis
These successes are not accidental. They share common traits. First, clarity of mandate. Regulators that know what they are responsible for act faster and with confidence. Second, institutional independence paired with accountability. Autonomy without oversight breeds arrogance; oversight without autonomy breeds paralysis. Third, professional capacity. Data, technology, and sector expertise are prerequisites. Fourth, visible enforcement. Markets calibrate behaviour to what regulators do, not what they say.
Given this, India’s regulatory crisis is not about ideology. It is about execution. Too many regulators are designed as clerks when they need to be pilots. They are buried in procedure, exposed to interference, and judged more on the absence of controversy than on the presence of order. This creates a perverse equilibrium: avoid decisions, delay enforcement, and issue guidelines. In the short run, this feels safe. In the long run, it corrodes confidence. A corrosion India’s next phase of growth simply can’t afford, especially amidst deglobalisation, because it makes the foreign investor uneasy.
The costs are mounting. Investment decisions are deferred. Litigation proliferates. Compliance becomes performative rather than substantive. Entrepreneurs hedge not against market risk but regulatory whim. Foreign capital, sensitive to governance signals, demands higher returns or stays away. Domestic capital learns the wrong lesson: influence beats efficiency.
Course correction
Course correction must be seen to make a difference. Symbolic reforms will not suffice. India needs a regulatory reset anchored in four moves.
First, fix incentives and tenure. Regulators must have secure, fixed terms with clear removal standards. Fear of post-retirement consequences — or pre-retirement pressure — distorts judgement. Cooling-off rules must be credible and enforced.
Second, invest in capability. Sector regulators need data infrastructure, analytical talent, and enforcement muscle. India has ‘one-exam-pass’ IAS manning a lot of regulators — this needs to change the era of specialisation.
Third, enforce visibly and proportionately. Penalties should bite where misconduct is systemic, and guidance should precede punishment where markets are genuinely evolving. Delay is the enemy.
Fourth, clarify accountability. Independent boards, parliamentary scrutiny, and judicial deference to reasoned decisions — not endless second-guessing.
India’s growth ambition is justified. The entrepreneurial engine is real. But engines do not fly planes. Cockpits do. If regulators remain in the cargo hold — unseen, uncertain and unsecured — India will taxi impressively and stall repeatedly. If they take the cockpit — visible, steady and trusted — the economy can lift, level and climb. Confidence is not a slogan. It is a system reboot.
Ninad D Sheth is a senior journalist. X: @ninadsheth.
(Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.)