One of the most important ideas in Prime Minister (PM) Narendra Modi’s Independence Day speech last August was the call for a new wave of reform built around deregulation. Since Independence, the channels through which enterprise flows have progressively calcified. The business environment remains clogged by a thicket of rules, permissions, registrations, approvals, inspections, and renewals. The result is a structural tax on entrepreneurship.

At Independence, India adopted universal franchise and began industrialisation by placing the State in control of the commanding heights of the economy. This gradually evolved into the Licence Raj. Between 1960 and 1991, Indian enterprise was constrained by pervasive controls: Production levels, product lines, and capacity expansion all required government approval. In effect, the Indian voter was subsidised by a protected manufacturing sector that could get away with producing poor-quality goods for the Indian consumer.

Unlike nearly every country that grew rapidly after the World War II — be it Japan, Germany, South Korea or more recently China and Vietnam — India did not build a strong export orientation. Exporters grew by selling to the demanding American consumer and won by continuously improving price and quality. India exported little and depended primarily on domestic consumption.

Between 1960 and 1991, growth was weak, infrastructure investment was inadequate, State-owned enterprises were inefficient, and the economy was tightly controlled. The 1991 reforms removed many of the worst........

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