Trust-Based Regulation

• 14 Jun 2025

For Prelims: Jan Vishwas (Amendment of Provisions) Act, 2023, Environment Protection Act, 1986, MSMEs, Union Budget 2025–26, Indian Forest Act, 1927, Invoice Management System (IMS), GST, Alternative Dispute Resolution (ADR), 73rd/74th Amendments, PARIVESH, MCA21.        

For Mains: Regulatory bodies and Jan Vishwas (Amendment of Provisions) Act, 2023, Need of trust-based regulation in India. 

Source: TOI 

Why in News? 

The Jan Vishwas (Amendment of Provisions) Act, 2023, effective from August 2023, replaces criminal penalties with fines for minor violations, decriminalizing 183 provisions across 42 Central Acts to promote ease of living, ease of doing business, and a trust-based regulatory approach. 

What is Jan Vishwas (Amendment of Provisions) Act, 2023? 

• About: It is a significant legislative reform aimed at enhancing the ease of doing business and promoting trust-based regulation in India, covering laws under 19 ministries like environment, agriculture, and corporate affairs. 
  • E.g., Procedural lapses under Environment Protection Act, 1986 are now met with financial penalties instead of imprisonment. 
• Objective: The reform shifts from punitive to reformative legal mechanisms by replacing jail terms for minor, non-malicious violations with monetary penalties, reducing fear and harassment, and improving compliance ease, especially for MSMEs. 
• Need: Many outdated provisions created legal uncertainty, disproportionately affecting marginalised communities and burdening businesses with fear of prosecution.  
  • A uniform compliance framework placed unequal stress on MSMEs, with high costs discouraging formalisation and expansion.  
  • To unlock economic potential, India needed a trust-based governance model replacing colonial-era, fear-driven laws that criminalised minor violations. 
• Future Steps: The Union Budget 2025–26 proposed Jan Vishwas Bill 2.0 to decriminalise over 100 more provisions and strengthen a trust-based regulatory system.  
  • It urges states and municipalities, where most jail-term laws exist, to adopt reforms, modernise legal frameworks, and define clear criteria for imprisonment.

What is a Trust-based Regulatory Approach? 

• About: It is a governance approach where the government assumes that individuals and businesses will act in good faith and comply with the law, instead of treating them as potential offenders from the start.  
• Approach: This model focuses on reducing unnecessary legal burdens and promoting voluntary compliance, while still retaining strict penalties for serious violations. 
  • It shifts from a policing mindset (strict penalties for minor violations) to a partnership model (encouraging voluntary compliance with reasonable consequences for lapses). 
• Key Features:  
  • Decriminalization of Minor Offenses: Replacing jail terms with fines for procedural or technical violations. 
  • Risk-Based Enforcement: Strict action only for serious violations (e.g., fraud, safety risks). 
  • Simplified Compliance: Reducing bureaucratic red tape to encourage business growth. 
  • Self-Declaration & Transparency: Trusting businesses/citizens to comply with audits only for high-risk cases. 
  • Reduced Government Interference: Minimizing harassment and rent-seeking by officials. 

Why does India Need a Trust-based Regulatory Approach? 

• Reducing Colonial-Era Punitive Measures: Many colonial-era laws like the Indian Forest Act, 1927 were designed to control rather than facilitate economic activity, imposing criminal penalties for minor violations that disproportionately impacted small businesses.  
  • These laws fostered a climate of fear, harassment, and rent-seeking, which can be addressed through a trust-based regulatory approach. 
• Ease of Doing Business: Excessive compliance burdens hinder entrepreneurship, with over 75% of MSMEs struggling with digital compliance and 95% needing more time and resources to adopt the Invoice Management System (IMS) under GST. 
  • The Act helps address this by simplifying regulations, and making compliance easier and less intimidating for businesses. 
• Decongesting the Judiciary: Over 5 crore cases burden Indian courts, many from minor violations better handled with penalties than criminal trials. 
  • Mechanisms like arbitration, mediation and conciliation can ease litigation and allow courts to focus on more critical cases. 
• Reducing Corruption & Harassment: The threat of imprisonment for procedural lapses enabled rent-seeking by corrupt officials, while mandatory attestations, inspections, and redundant data requests wasted resources, shifting to a trust-based system can cut bureaucracy and free resources for productive use. 
• Economic Growth: Fear of criminal charges from unintentional non-compliance deters small business expansion, but states like Madhya Pradesh, Kerala, and Haryana have adopted reforms that promote regional growth.  
  • Building on this, Jan Vishwas 2.0 (Budget 2025–26) plans to decriminalize 100+ more provisions, further easing compliance and supporting business-friendly governance. 
• Aligning with Viksit Bharat 2047 Vision: India’s Amrit Kaal vision promotes minimum government, maximum governance, enabling citizens and businesses to operate with minimal interference. A trust-based system prioritizes outcome-based governance, encouraging innovation and investment.  

What are the Challenges in India's Shift Towards Trust-based Regulation? 

• Legacy of Colonial Distrust in Governance: India’s colonial legacy of suspicion and process-heavy bureaucracy fosters excessive oversight, red tape, and distrust, making it hard to shift to trust-based regulation as systems remain focused on control over facilitating compliance and ease of doing business. 
• Overlapping Regulatory Framework: India has 1,536 laws with 69,233 compliances, many redundant or conflicting. While the Centre decriminalizes laws (e.g., Jan Vishwas Act), rigid state regulations cause confusion, disproportionately burdening MSMEs. 
• Resistance to Decentralization & Autonomy: Despite the 73rd/74th Amendments, local governments lack true autonomy due to top-down control, with officials favoring audits and penalties over risk-based enforcement, sustaining mistrust. 
• No Trust Metrics: A key challenge in India’s shift towards trust-based regulation is that trust is rarely measured like financial or service indicators, making it difficult to assess policy impact. 
  • Additionally, implementation gaps in initiatives like e-Bill Systems and PARIVESH lead to delays, weakening efforts to build a trust-driven governance framework. 

How can Trust-based Regulation be Strengthened in India? 

• 'One Nation, One Business' Identity System: Adopting a unified 'One Nation, One Business' identity system can streamline processes, while a digital-first approach using tools like Digi Locker can significantly reduce approval times.  
  • Lessons from initiatives such as Digi Yatra and FSSAI’s predictable regulatory updates can help guide reforms across sectors. 
• Harmonizing Laws: Jan Vishwas 2.0 should fast-track decriminalization of 100+ provisions, focusing on state-level laws holding 80% of jail clauses.  
  • A Deregulation Commission is needed to align central and state laws, while sector-specific reforms should target MSMEs, environment, and labour, replacing outdated penalties with graded fines. 
• Institutionalizing Risk-Based Enforcement: Mandate Regulatory Impact Assessments (RIA) to evaluate compliance burdens and align penalties with actual harm.  
  • Use AI-driven tools for targeted audits over blanket inspections, and set clear criteria for imprisonment, reserving it for serious offenses like fraud or public safety risks. 
• Enhancing Transparency & Reducing Discretion: Expand digital platforms like MCA21 with blockchain authentication to enable paperless compliance.  
  • Strengthen whistleblower protections against corruption and use public dashboards for real-time transparency in inspections and penalties. 
• Measuring Trust & Outcomes: Create metrics like compliance ease scores and citizen feedback to assess reform impact. Launch pilot programs in sectors like FinTech and establish stakeholder councils for regular industry-regulator dialogue to refine policies. 

Conclusion 

The Jan Vishwas Act, 2023 marks a progressive shift towards trust-based governance by decriminalizing minor violations and reducing regulatory burdens. To fully realize its potential, India must streamline laws, empower local bodies, embrace digital tools, and build institutional trust—ensuring efficient, citizen-centric, and growth-oriented governance aligned with Viksit Bharat 2047. 

Drishti Mains Question: 

Q. A key feature of a developed society is the government's trust in its citizens and institutions." In this context, critically examine the shift towards trust-based governance in India. 

UPSC Civil Services Examination, Previous Year Question:(PYQ)   

Prelims 

Q. What is/are the recent policy initiative(s)of Government of India to promote the growth of the manufacturing sector? (2012)  

1. Setting up of National Investment and Manufacturing Zones   
2. Providing the benefit of ‘single window clearance’   
3. Establishing the Technology Acquisition and Development Fund   

Select the correct answer using the codes given below:   

(a) 1 only   

(b) 2 and 3 only   

(c) 1 and 3 only   

(d) 1, 2 and 3  

Ans: (d) 

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Mains  

Q. “Industrial growth rate has lagged behind in the overall growth of Gross-Domestic-Product(GDP) in the post-reform period” Give reasons. How far are the recent changes in Industrial Policy capable of increasing the industrial growth rate? (2017)

Q. What are the major changes brought in the Arbitration and Conciliation Act, 1996 through the recent Ordinance promulgated by the President? How far will it improve India’s dispute resolution mechanism? Discuss. (2015)