May 2026. One Reddit post, in particular, went viral. Unlike the usual discussions about relationships or workplace woes, it was an entrepreneur recounting his experience of trying to do business in India, and the frustration was hard to miss.
He wrote about endless documentation for GST, bank accounts, import-export registrations and customs clearances. Every shipment brought more paperwork, delays and repeated interactions with officials, often accompanied, he alleged, by harassment and corruption. The pain was unmistakable. Eventually, despite higher operating costs abroad, he shifted his business from Gujarat to New York.
The episode captured an uncomfortable paradox. India wants entrepreneurs to build, invest and create jobs, yet dealing with the state can remain costly and unpredictable. When businesses spend more time complying than building, growth silently suffers.
To address this challenge, the Union Government has recently initiated what the Economic Survey refers to as the second phase of its comprehensive deregulation drive, popularly termed “Deregulation 2.0.” Though not an official designation, the term captures the next stage of reforms aimed at reducing regulatory barriers and improving ease of doing business. Led by Cabinet Secretary T. V. Somanathan, the exercise focuses on 28 priority areas across seven sectors, including land, labour, education, environment, building regulations and utilities.
So, does Deregulation 2.0 genuinely go beyond its predecessor? And can it transform the regulatory state itself, rather than become just another regulatory cleanup exercise?
As India marks its 80th Independence Day, this is the question we explore in today’s Policy Mandala.
To answer that, we need to understand how India reached here.
For decades after Independence, businesses operated under the Licence Raj, requiring permissions to start, expand or invest. The 1991 reforms dismantled much of industrial licensing, but approvals, inspections and compliances across multiple authorities persisted.
Later reforms tackled parts of this burden. GST simplified indirect taxation, while the Jan Vishwas Act de-criminalised several minor business offences.
The first phase of the deregulation exercise launched in 2025, named Deregulation 1.0, then targeted specific compliance bottlenecks across states. By January 2026, 76% of its reforms had been implemented, with another 10% underway.
That is substantial progress. Yet regulatory friction persists because removing individual compliances does not automatically remove friction embedded in government processes.
This is where Deregulation 2.0 seeks to go further. While its predecessor focused on identified bottlenecks, 2.0 points towards a broader shift in how the government regulates: greater use of trust-based systems, fewer repetitive approvals, stronger coordination across departments, periodic review of rules and better state capacity.
The deeper challenge, therefore, is not just to remove regulations, but to build a state that continuously regulates better. But how exactly does it plan to do so?
Three things stand out. First, Deregulation 2.0 recognises the fact that regulations not only constrain businesses and the economy but also have a real impact on the daily lives of citizens. Thus, it expands beyond traditional business regulation into sectors such as education and healthcare, which were largely absent from the first round.
Second, the 28 priority items have some potent tools for wider systemic change. For instance, Deregulation 2.0 proposes, for the first time, a repository of all state Acts, Rules, Regulations and Government Orders, followed by a principle-based review. This can help identify outdated, overlapping and contradictory requirements, while bringing greater coherence between deregulation efforts at the Centre and in the states.
And finally, it flips the regulatory philosophy on its head. Two proposed moves towards self-declaration and protection from inspections for MSMEs, alongside a “permitted until prohibited” approach in land-use and construction, signal a shift from permission-first regulation towards more trust-based models, for instance self-attestation.
But can Deregulation 2.0 translate this philosophy into practice?
Deregulation 2.0 gets a few things correct; the philosophy is sound, the sectors are wide-ranging, and several of the proposed tools can enable deeper reform. What remains uncertain, however, is whether the institutional infrastructure exists to implement them consistently.
The first challenge is federal alignment. Under Deregulation 1.0, all 12 top-performing states were NDA-ruled, while politically adversarial West Bengal and Delhi were near the bottom. Yet results of deregulation in states like Telangana shows that political differences need not prevent reform where administrative intent exists. The lesson is simple: since many approvals and inspections sit with states and local bodies, deregulation requires Centre-state cooperation even amid political differences.
The second challenge is hidden regulation. Regulation does not always come in recognisable forms but may be hidden deep inside seemingly usual processes. Some of India’s largest business frictions also sit outside the conventional definition of regulation.
India ranked 163rd on enforcing contracts in the World Bank’s Doing Business Rankings. Yet dispute resolution and tax administration remain peripheral to the current 28-area agenda. A permission may take days to obtain, but a commercial dispute can still take years to resolve. Cases can linger on for years till the businesses get frustrated and leave.
Such regulations can also sometimes border on the absurd. Until recently, opening a restaurant in Delhi could require an Eating House Licence from the police, alongside approvals from municipal, fire and food-safety authorities. In 2025, the requirement was finally scrapped after the government itself acknowledged the overlap.
The third challenge is regulatory accumulation. Crises routinely produce new rules and reporting requirements, while older ones are rarely revisited. Periodic regulatory reviews and sunset clauses can prevent today’s legitimate safeguard from becoming tomorrow’s unnecessary compliance. Without them, Deregulation 2.0 risks becoming another one-time cleanup.
So, what should India’s version of Deregulation 2.0 look like? While not enough information is available about the precise details of the exercise, here is our wishlist.
First, simplify before digitising. Remove unnecessary permissions, move low-risk activities towards self-certification and digitise only what genuinely needs to remain.
Second, follow the business journey. Map processes end-to-end, identify repeated documents, stalled files and overlapping inspections, and fix these nuts-and-bolts bottlenecks rather than counting only regulations repealed.
Third, institutionalise deregulation. Periodic regulatory reviews and sunset clauses should ensure obsolete rules do not quietly accumulate again.
Finally, take the bull by the horns. Bring harder structural bottlenecks such as contract enforcement, customs and tax administration within the reform conversation.
The entrepreneur who moved from Gujarat to New York did not leave because India lacked opportunity. He left because accessing that opportunity became too difficult.
That will be the real test of Deregulation 2.0: whether entrepreneurs experience the state not as another obstacle to navigate, but as an institution that enables them to build for Bharat. At Policy Mandala, we will continue tracking whether that shift actually takes place.
Co-Authored by Samridh Joshi and Avdhesh Pathak
