The committee submitted reports in November outlining detailed recommendations for reforms to be undertaken to ease the regulatory burden on micro, small and enterprises (MSMEs) as well as to rationalise the system of quality control orders. It is these proposals that apparently dominated the discussions during the four-hour meeting held May 21 by Prime Minister Narendra Modi with his Council of Ministers to consider the fall out of the war in West Asia.

Gauba Committee's Recommendations

The Gauba committee is reported to have made wide ranging suggestions for cutting red tape in regard to MSMEs who play a pivotal role in the country’s economy. The focus on this sector is not misplaced as it accounts for 35% of total manufacturing output and for as much as 48% of total exports. In addition, these industries generate nearly one third of the gross domestic product (GDP). The health of this segment is thus critical if economic growth is to be sustained at even the moderately high level of 6% to 7%.

Despite the urgency of improving productivity and output in small and medium industry, the recommendations have yet to be fully implemented even six months after being submitted to the government. It is only the growing fall out of the West Asian crisis that has ultimately galvanised policymakers to look at them again. That being said, one can only hope the ongoing economic emergency will prompt action on the report as it could have an enormous impact in terms of improving the ease of doing business. 

The measures outlined in it are meant to cut the regulatory cholesterol impeding business operations This includes scrapping mandatory Corporate Social Responsibility (CSR) obligations for micro and small companies and exempting firms with turnovers below Rs. one crore from statutory auditor mandates. It also suggests reducing compulsory board meetings for these firms to one per year. It has urged that Goods and Services Tax (GST) filing thresholds be eased and tax audit exemption limits be raised to ₹2 crore. Besides, it suggests expediting delayed payment disputes with mandatory pre-deposits and sole arbitrators. The report urges expansion of the Credit Guarantee Fund Trust for Micro and Small Enterprises to cover medium sized manufacturing enterprises. 

The Red Tape Continues

What is interesting is that most of these recommendations seem to involve technical and procedural bottlenecks that should have been resolved easily. But red tape continues to tangle up the smooth operations of trade and industry. So far it seems that little action has been taken on the proposals which are meant to reduce the compliance burden on MSMEs.  

The report also took up the issue of Quality Control Orders (QCO) for review. The QCOs are a system of regulations to ensure quality standards for products manufactured in this country. Though initially introduced in 1986, these proliferated after 2017 as it was recognised that domestic products were not able to meet international standards in several areas. This led to a proliferation of these orders to over 800 currently. From finished goods, they have been extended to raw materials and intermediates as well as imported products. They have ended up disrupting supply chains, leading to a cascading impact on a wide range of industries. QCOs have thus become a hindrance to industry rather than fulfilling the original purpose of meeting global standards.

As a result of the Gauba committee’s recommendations, the government decided to withdraw 47 QCOs while suspending or deferring two others. But the report had suggested wider action and proposed scrapping of 27, suspending of 112 and deferring of 69 QCOs. The fact that the report has been implemented only partially reflects the desultory approach towards improving ease of doing business, despite the repeated statements of intent at the highest level on this issue.

Deeper Economic Reforms

The Gauba committee report needs to be viewed in the backdrop of the need for deeper economic reforms as the country seeks to achieve the goal of a developed economy by 1947. It is illuminating that the report which seeks to reduce the role of bureaucratic interventions in business operations was virtually sidelined till the West Asia crisis has forced a rethink on major policy issues. This includes the need to improve foreign direct investment inflows. While gross FDI was a record US$ 94.5 billion in 2025-26, the net inflows were much lower at US$ 7.6 billion. One of the biggest problems in raising investment inflows is the continued perception that India is a difficult country for doing business. 

It is in the midst of the West Asia crisis that Prime Minister Modi decided to make a clarion call to his ministers to forge ahead with economic reforms. This attitude of using every crisis as an opportunity to deepen reforms is a tried and tested strategy of the present government. It was during the Covid pandemic, when the economy actually saw a contraction for the first time, that it was decided to step on the accelerator for infrastructure development, instead of providing short term relief for industry, as was being done in many other countries. Last year’s tension over skyrocketing US tariffs also became an occasion to cut and rationalise GST rates while finally going ahead to notify the Labour Codes that had been passed in Parliament in 2020. 

One can only hope that the recent high-level review will lead to firm action to improve the ease of doing business and reduce the regulatory cholesterol that continues to clog our administrative systems.