Over-regulated compliance triggered corruption perceptions index

India’s modest rise in the 2025 Corruption Perceptions Index (CPI), released by Transparency International on February 10, offers cautious encouragement but also highlights deeper structural realities. India has moved up five places to rank 91st out of 182 countries, with its score improving marginally to 39 out of 100. Yet this remains below the global average of 42 and far from the standards of clean, transparent governance. The improvement is welcome, but a sub-40 score underscores a persistent truth: corruption in India is not merely episodic misconduct; it is embedded within institutional design, particularly in the architecture of over-regulation and compliance overload.

The CPI measures perceived corruption in the public sector, and perceptions are shaped by institutional experience rather than official intent. In India, excessive regulatory layering has quietly become one of the most powerful enablers of corruption. When compliance frameworks are dense, fragmented and discretion-heavy, they multiply the points of interface between citizens, businesses and authorities. Each interface creates opportunities for delay, interpretation and selective enforcement, conditions under which corruption thrives.

Compliance raj

India’s economic liberalisation in 1991 dismantled much of the overt licensing regime associated with the Inspector Raj. Yet fragments of that control-oriented mindset persist in modern regulatory systems. The form has evolved, but the burden remains. Corruption flourishes not only when rules multiply, but when those rules are complex, overlapping and enforced through administrative discretion rather than objective, transparent standards. When discretion expands without accountability, corruption ceases to be an aberration and instead becomes a rational response to uncertainty. The scale of India’s compliance burden shows the depth of this structural challenge. A typical firm must navigate as many as 1,536 Acts and submit over 6,600 filings annually across central and state jurisdictions, spanning environmental clearances, taxation, industry regulations, and financial oversight by agencies such as the RBI, SEBI, and CBIC. Even small enterprises face overwhelming regulatory demands. A small pharmaceutical firm, for instance, spends `12-20 lakh annually to comply with nearly 1,000 regulatory requirements, of which 486 carry imprisonment provisions for procedural lapses. An ordinary eatery or tuckshop may require more than 30 licences to operate legally. These numbers reflect not regulatory strength, but regulatory congestion. Each compliance requirement creates another checkpoint and more uncertainty, which often turns governance into negotiation. Instead of focusing on productivity, innovation, and competitiveness, entrepreneurs are forced to navigate regulatory risk.

Criminalisation of compliance

The persistence of criminal penalties for procedural and technical non-compliance intensifies this pressure. Under Section 132 of the Goods and Services Tax Act, even procedural errors in claiming input tax credit beyond specified thresholds can trigger imprisonment of up to three years. Such provisions, while intended to deter fraud, often blur the distinction between deliberate evasion and technical error, expanding discretionary power at the enforcement level.Recognising this challenge, the Jan Vishwas Act of 2023 marked an important shift in reform philosophy. Out of 26,134 criminal provisions across 1,536 acts, approximately 3,400 were decriminalised and replaced with monetary penalties. This reform acknowledged a fundamental reality: criminal penalties for procedural lapses discourage enterprise, increase compliance anxiety and create conditions conducive to harassment. By shifting the focus from punishment to proportional accountability, the Act reduced some of the systemic pressure that fuels corruption.

Punjab, for example, eliminated 1,498 mandatory compliances to ease regulatory burdens. Yet even after these reductions, over 1,400 compliance requirements and more than 1,200 imprisonment clauses remain in force. These figures demonstrate that while reform has begun, the underlying regulatory overhang persists at a scale that sustains structural corruption risks.

Deregulation commission: A preventive anti-corruption framework

The government’s move to create a Deregulation Commission represents a potentially transformative institutional intervention. If designed with independence, statutory authority and clear time-bound mandates, such a Commission could fundamentally shift India’s anti-corruption strategy from reactive enforcement to preventive institutional design. Instead of focusing solely on punishing corruption after it occurs, governance reform must aim to reduce the structural conditions that make corruption possible in the first place.

A Deregulation Commission could institutionalise Regulatory Impact Assessments (RIA) as a mandatory requirement for all new regulations. These assessments would evaluate the economic, administrative and compliance costs of proposed rules before implementation. Policymakers would be compelled to answer a simple but critical question: Does a proposed regulation address a genuine market failure, or does it merely add another layer of control? Embedding such discipline would prevent the accumulation of redundant and overlapping regulations over time. Harmonising central and state compliance frameworks would further reduce duplication, inconsistency and administrative conflict.

Reforming compliance

India’s ambition to become a $10-trillion economy depends not only on capital investment and technological innovation, but also on institutional credibility. Investors assess regulatory predictability as carefully as market opportunity. Entrepreneurs need clarity to operate in competitive and time-sensitive environments. Citizens expect fairness, transparency and consistency from governance systems.

Improving India’s CPI ranking sustainably will not come from sporadic crackdowns or rhetorical commitments. It will require deep structural reform that reduces the number of corruption entry points within governance systems. Rationalising compliance requirements, reducing excessive criminalisation, embedding impact assessments and institutionalising periodic regulatory review are not merely ease-of-doing-business reforms; they are foundational anti-corruption measures.

The way forward

India’s rise in the Corruption Perceptions Index should be seen as a signal and a call to accelerate structural reform. By cutting red tape, institutionalising regulatory discipline and redesigning compliance frameworks, India can convert incremental progress into lasting governance credibility. Corruption feeds on complexity and weakens in clarity.

By replacing excessive control with intelligent, transparent and proportionate regulation, India can strengthen institutional trust, unlock economic dynamism and reinforce democratic accountability. The path to a truly Viksit Bharat lies not in enforcement alone, but in systemic reform.

The author is Vice-Chairman of the Punjab Economic Policy and Planning Board,Chairman of ASSOCHAM Northern Region Development Council ; views are personal