Across many Indian cities, a familiar scene plays out: footpaths are lined with vendors selling clothes, bags, vegetables, food, drinks, books, electronics, and assorted knick-knacks, while just behind them, air-conditioned shops sit underutilized. The contrast does not arise from a lack of demand—customers clearly exist—but from a regulatory structure that pushes activity into informality and away from formal retail spaces.
In this environment, formal shops often avoid stocking fast-moving, low-margin items because the compliance burden looms larger than the commercial benefit. The decisive factor is not entrepreneurial intent or consumer appetite; it is regulation—its volume, variability, and the costs imposed on lawful participation.
A case frequently cited in Mumbai’s restaurant sector illustrates the problem with specificity. Opening and running a restaurant commonly involves securing more than 40 licences, each with different renewal cycles—monthly, semiannual, annual, and ad hoc. Around 12 distinct inspectors or officers may visit the premises, and across a year, owners can face upward of 450 interactions with authorities for forms, inspections, certificate issuance, and collection. In practice, the process is often “smoothed” by bribes. Some officials approach the relationship antagonistically, presuming guilt at the outset; others outline their “demands” in a matter-of-fact manner.
By contrast, a nearby informal food stall frequently navigates the system with a single daily bribe. Operations become predictable, interactions cordial, and even enforcement actions—such as occasional raids—may be flagged in advance. The net effect is perverse: it is cheaper, faster, and less uncertain to operate outside the law than within it.
This pattern holds across many sectors where informal stalls compete with formal shops. The underlying reality can be summarized succinctly: the cost of complying with the law is high and the benefits are low, while the cost of breaking the law is low and the benefits are high. Such asymmetry entrenches informality, distorts competition, and erodes public faith in institutions.
Although the central government and several states have initiated ease-of-doing-business reforms, city-level governance frequently retains a colonial-era mindset that presumes citizens are default violators. Many municipal regulations and administrative practices still reflect extractive, control-oriented frameworks inherited from British rule. In response, citizens rationally adapt to survive and transact by subverting rules that appear arbitrary, unpredictable, or rent-seeking.
A constructive path forward aligns with a dharmic understanding of social order—prioritizing trust, duty, fairness, and mutual responsibility. When oversight is designed to serve rather than to control, it fosters social harmony and shared prosperity across dharmic traditions—Hinduism, Buddhism, Jainism, and Sikhism—by encouraging lawful participation, respect for public space, and ethical commerce.
Intelligent deregulation offers a practical remedy. Key elements include simplifying and unifying licences into a single-window interface; digitizing renewals with predictable timelines; calibrating inspections to risk and data signals rather than routine harassment; and imposing strict penalties for predatory enforcement and bribery. Enforcement should prioritize genuine public goods—food safety, hygiene, fire compliance, and pedestrian access—while removing redundant, duplicative, or discretionary hurdles that invite rent extraction.
When compliance becomes easy, transparent, and proportionate, lawful enterprise outcompetes informality on its merits. Footpaths can be reclaimed for pedestrians through fair enforcement, formalization becomes attractive, corruption declines, and local economies thrive. Such a shift would not only improve the ease of doing business but also strengthen civic trust, institutional legitimacy, and urban well-being.
Inspired by this post on RightViews.
