India's Finance Minister Emphasizes Trust-Based Regulatory Environment Amid Rising Global Protectionism

Finance Minister Nirmala Sitharaman recently re-emphasised how a “trust-based regulatory environment” could serve as one of the pillars of India’s economic policy paradigm, along with other foundational structures like quality physical infrastructure, macroeconomic stability, and international partnerships. “Regulation should be a guardrail, not a tollgate. And deregulation for us is a habit we intend to keep,” the minister said. This is reassuring in the wake of heightened challenges posed by a volatile external world to Indian businesses, especially micro, small, and medium enterprises ( MSMEs ). Sustained and faster domestic deregulation would be a potent antidote to the developed countries’ volte-face on how they transact with the rest of the world . It had been a hard-won consensus that global trade in goods and services and cross-border capital flows would be increasingly market-determined and progressively liberalised under a rule-based framework. But the US’s blatant hegemonism has turned this policy on its head, all of a sudden. Global trade policies have turned rudderless, disorderly, and utterly unpredictable. Instruments of protectionism have proliferated as a result. National security, human rights, environmental standards, and labour rights are being invoked by the US, European Union (EU), and others to impose tariffs and other barriers on trade and restrict cross-border movement of professionals. These measures are not without any grounds altogether, but are sometimes unjustified and often disproportionate. Some are merely ploys to sabotage free trade and mask the eroding competitiveness of rich-world industries . The US’s Section 301 “forced labour” levies, Section 232 tariffs on steel and aluminium, the EU’s carbon tax, the steel levies of the UK and EU, and Washington’s latest threat of prohibitive levies on generic medicines illustrate how new tools are being employed to constrict market access. India’s MSME units, which dominate its labour-intensive sectors, have already borne the brunt of such rising protectionism. They could face a graver threat in the coming years unless policy support is sufficient. As overall merchandise exports fell from 17% of the GDP in FY27 to a little under 11% in FY26, these sectors saw annual shipments declining in absolute terms. MSMEs operated under exclusive manufacturing reservation regimes for long decades, notably for products like textiles and readymade garments, food items like edible oils, certain chemicals and metals, wooden furniture, etc. These privileges were ostensibly protective, but were actually growth-stunting. They prevented technology upgrade and scaling. With their phasing out, a new set of policies aimed at promoting competition, easing market access, and facilitating credit came into being, along with public procurement preferences, assorted capital subsidies, and faster payment settlements. These schemes have yielded some results: the average annual growth in bank credit to MSMEs in the six years through May 2026 was 20.6% as against a 14.8% average growth in total bank credit. The goods and services tax has brought thousands of small manufacturing units and traders into the formal economy. The finance minister’s statement revives the hope that the Deregulation Commission set up last year would take significant steps to reduce regulatory excesses and thwart bureaucratic rent-seeking. For emerging market economies like India, careful deregulation is as vital as structural reforms to accelerate growth. Greater tax certainty and predictable exit mechanisms will complement the effort. At the same time, attention must also be given to letting regulators have the necessary functional autonomy and teeth, so that undue market concentrations and oligopolies don’t stifle the units in the larger economic universe.