SYLLABUS

GS-3: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment; issues relating to intellectual property rights.

Context: India has improved from 82nd (2010) to 57th (2023) in the Market Distortions Performance Index (MDPI), reflecting significant progress in reducing anti-competitive market distortions through structural and pro-competitive reforms, according to the Competere Foundation's report India's Next Growth Frontier: Reducing Anti-Competitive Market Distortions to Build on India's 2010–2023 Reform Progress.

Key Findings of the Report

• India advanced 25 places in the global rankings between 2010 and 2023, emerging as one of the strongest structural reformers among the economies assessed. 

• The report estimates that reforms undertaken during the period reduced India's projected five-year GDP per capita loss by 11 percentage points, translating into roughly an additional 1% annual gain in GDP per capita. 

• Despite the progress, the report estimates that remaining market distortions impose an economic cost of about $173.6 billion over five years, equivalent to nearly 4.2% of GDP. 

• Foreign investment restrictions account for the largest share of these losses (about $127.2 billion), while competition policy-related distortions, particularly in digital markets, contribute around $46.4 billion. 

• The report notes that India has substantially improved domestic competition, but external regulatory barriers and domestic investment restrictions continue to constrain its growth potential. 

About the Market Distortions Performance Index (MDPI)

• The MDPI, developed by the Competere Foundation, measures the extent of government-imposed or government-tolerated anti-competitive market distortions that restrict voluntary exchange and competition. 

• Unlike the World Bank's discontinued Ease of Doing Business Index, the MDPI focuses on anti-competitive market distortions affecting productivity and competition.

• It evaluates countries across three pillars: 

• Property Rights Protection (PR): Measures the protection of property rights and the legal environment supporting investment. 
• Domestic Competition (DC): Assesses regulations affecting market entry, business operations, investment, insolvency, and competition within the domestic economy.
• International Competition (IC): Evaluates barriers affecting international trade, foreign investment, customs procedures, and cross-border competition. 

• The report finds that India's greatest improvement occurred in the Domestic Competition pillar, reflecting major reforms in the domestic regulatory and business environment. 

Major Drivers Behind India's Improved Ranking

• Goods and Services Tax (GST, 2017): Unified India's indirect tax system, reduced internal fiscal fragmentation and created a more integrated domestic market. 

• Insolvency and Bankruptcy Code (IBC, 2016): Strengthened insolvency resolution, improved asset reallocation and enhanced investor confidence. 

• Improved Business Environment: India improved from 142nd in the World Bank's Doing Business 2015 rankings to 63rd in Doing Business 2020, reflecting significant regulatory reforms. 

• Trade Facilitation Reforms: Initiatives such as the Indian Customs Electronic Gateway (ICEGATE), Single Window Interface for Facilitating Trade (SWIFT), Authorised Economic Operator (AEO) Programme, Direct Port Delivery (DPD), Direct Port Entry (DPE) and Risk Management System (RMS) reduced transaction costs and improved customs efficiency. 

• Reforms in competition policy, investment conditions, digital markets and regulatory governance also contributed to improving India's competitiveness. 

Key Recommendations of the Report

• Adopt an evidence-based and effects-oriented approach to competition policy, particularly in digital markets, focusing on demonstrable consumer harm rather than firm size. 

• Review sector-specific foreign investment restrictions, including ownership caps, approval requirements and business-model restrictions, based on their impact on consumer welfare, investment and productivity. 

• Continue strengthening retail and e-commerce reforms to improve logistics efficiency, technology diffusion, supplier access and consumer benefits. 

• Actively challenge unnecessary external regulatory barriers, especially sanitary and phytosanitary measures, technical regulations and sustainability-related standards that restrict exports. 

• Promote science-based standards, mutual recognition, regulatory cooperation and equivalence with trading partners while resisting protectionist regulatory practices. 

• Use the MDPI framework to continuously benchmark reforms, identify remaining distortions and prioritise measures that maximise long-term productivity and GDP per capita growth.