Lowering the Cost Barrier: India’s Next Big Reform Agenda

• Despite ease-of-doing-business reforms, high costs in credit, land, logistics, inputs, and compliance weaken competitiveness.

• Expanding affordable credit and modernising banking processes are critical.

• Rationalising power tariffs and fixing inverted duties will boost manufacturing.

• Private investment must complement public infrastructure spending.

• Land and compliance reforms are essential to help MSMEs scale.

• Lower costs are vital for sustained 8%+ growth.

  
  

Over the past ten years, India has made notable progress in simplifying procedures and improving the business climate. Regulatory reforms and digitalisation have made it easier to start and operate enterprises. Yet, despite these gains, the overall cost of doing business remains a significant hurdle. Elevated expenses related to finance, land, inputs, logistics, and compliance continue to weaken India’s global competitiveness. To close this gap, India must rigorously compare its cost structures with those of manufacturing powerhouses such as China and Vietnam and act decisively to address persistent structural disadvantages.

The High Price of Capital

One of the most pressing concerns is the cost of capital. Borrowing remains more expensive in India than in several competing economies. Domestic private sector credit stands at roughly 50–55% of GDP — far below the global average of 148%. This disparity underscores the substantial room available for credit expansion.

A key reason for elevated borrowing costs is the government’s sizeable draw on domestic savings. Heavy public borrowing reduces the pool of funds available to private enterprises, pushing up interest rates. Gradually lowering the statutory liquidity ratio (SLR) from 18% to 10% could release additional capital into the system and ease financing costs.

At the same time, banking processes require modernisation. Opening a business bank account can take more than a week and often demands repeated submission of physical documents. A shift toward fully digital, risk-based onboarding systems would streamline operations while maintaining safeguards. Additionally, lending models must evolve to reflect new forms of economic activity. Leveraging transaction data from platforms such as GST, UPI, and the Open Credit Enablement Network (OCEN) can help expand access to credit and tailor products to emerging business models.

Rethinking Input Costs

Electricity pricing is another structural challenge. Current cross-subsidy frameworks place a disproportionate burden on industrial and commercial users to offset lower tariffs for agriculture and households. Over time, this distorts competitiveness. A phased withdrawal of cross-subsidisation, paired with better targeting of subsidies, would align tariffs more closely with actual supply costs.

Trade policy also needs recalibration. For India to strengthen its export base, it must facilitate access to globally competitive inputs. Inverted duty structures — where import duties on raw materials or intermediate goods exceed those on finished products — can undermine domestic manufacturing. Correcting these anomalies is essential.

In technology-intensive sectors, foreign investment plays a critical role in transferring expertise and innovation. Policymakers may need to revisit the scope of Press Note 3 and consider replacing blanket restrictions with a calibrated, risk-based screening approach that protects national interests without discouraging valuable capital inflows.

Logistics: Progress with Room for Refinement

India has made strides in lowering logistics costs, bringing them down from the long-cited 13–14% of GDP to closer to 8%. Continued public investment has helped; the latest budget maintains capital expenditure at 3.1% of GDP, with effective capex reaching 4.4%.

Looking ahead, the proposed National Monetisation Pipeline (NMP) 2.0 aims to unlock assets worth ₹16 lakh crore. However, public resources alone will not suffice. Mobilising private capital is crucial. A coordinated approach involving multilateral development banks, governments, and private investors could reduce risks in public-private partnership (PPP) projects through credit enhancements, shared risk frameworks, and stronger project management capabilities at state and municipal levels.

Still, infrastructure expansion is only part of the solution. Delays at ports and unpredictable customs procedures frequently inflate costs and disrupt supply chains. Businesses often face uncertainty regarding tariffs and processing timelines. Transitioning from discretion-heavy systems to technology-driven, trust-based customs processes — with quicker clearances and targeted inspections — would significantly enhance efficiency.

Reforming Land Markets

Land acquisition remains one of the more complex aspects of doing business in India. Fragmented ownership patterns, ambiguous pricing, insecure titles, and prolonged disputes can stall projects and inflate financing risks. Introducing long-term, standardised land tenure systems would provide greater clarity and predictability for investors and lenders alike.

Given that land governance primarily falls under state jurisdiction, meaningful reform requires cooperative federalism. Coordinated action between the Centre and states is essential to modernise land records, streamline approvals, and reduce uncertainty.

Easing the Compliance Burden

Compliance costs pose a particular challenge for micro, small, and medium enterprises (MSMEs). Uniform regulatory frameworks often impose similar requirements on small factories and large corporations, creating disproportionate burdens for smaller firms. This discourages formalisation and scaling.

A move toward proportionate, risk-based regulation would allow oversight to reflect enterprise size and risk profile. Although periodic consolidation of rules occurs, the cumulative stock of regulations rarely shrinks. Regular regulatory reviews and sunset clauses could help prevent unnecessary accumulation and keep compliance demands manageable.

The Road to Sustainable Growth

India has already undertaken the foundational work of improving ease of doing business. The next phase must focus squarely on reducing the cost of doing business. Competitive cost structures enable firms to scale production, secure export contracts, and generate higher-productivity employment opportunities.

Ultimately, lowering systemic costs is not merely an industry demand — it is central to sustaining growth rates above 8% and strengthening India’s position in the global economy.