Policy Uncertainty – India’s Biggest Business Risk

One of the biggest hurdles to doing business in India today is not infrastructure, taxation, or talent—it is policy unpredictability.

The Economic Survey 2019 reminded us that India’s own thinkers since ancient times tied prosperity to rule of law (Dandaniti) and protection against arbitrary rule (Matsyanyaya). In modern terms, this means clear rules, consistent enforcement, and contract sanctity. Investors, entrepreneurs, and global partners all look for this.

Yet, over the past decade, India has repeatedly seen sudden policy shocks. These not only create losses for businesses and investors but also erode long-term trust between government and enterprise.

Case Studies of Policy Uncertainty

Maggi Ban (2015)

FSSAI imposed a sudden nationwide ban on Nestlé’s Maggi noodles citing excessive lead/MSG. Months later, the Bombay High Court lifted the ban after independent tests cleared the product.

·         Nestlé lost sales and investor confidence.

·         The episode became a global case study on India’s regulatory unpredictability.

Demonetization (2016)

The government invalidated 86% of currency in circulation overnight, citing black money, corruption, counterfeit notes, and digitization.

·         Micro and small enterprises faced an existential crisis.

·         Consumers struggled for months.

·         No credible outcome report has been released, and the ruling party no longer highlights this “reform”.

Amaravati Project Rollback (2019)

The new Andhra Pradesh government cancelled ongoing projects, reopened power purchase agreements worth 5.2GW, and lost World Bank/AIIB funding for Amaravati.

·         Contractors, lenders, and investors faced huge losses.

·         Political risk perception shot up.

·         Trust deficit between private capital and state deepened.

Online Gaming Ban (2025)

The government abruptly banned all real-money online gaming under the guise of protecting users from addiction.

·         Stakeholders were given no consultation or transition.

·         Just a year earlier, the government had legitimized the sector with a 28% GST.

·         The move exposed inconsistencies in governance priorities.

Frequent Tax Changes

Ad-hoc changes in taxation of capital gains, buybacks, and dividends have repeatedly disrupted long-term investment planning. Investors call this “taxation by surprise”.

Why This Matters

The Economic Survey 2019 itself warned:

·         Policy uncertainty raises systematic risk and cost of capital.

·         Higher uncertainty discourages investment due to irreversibility of capital decisions.

·         Predictable and consistent policy attracts investors.

Despite this, India continues to score high on unpredictability.

The Bottom Line

India has the scale, demographics, and entrepreneurial energy to attract global capital. But without policy stability and regulatory predictability, much of these potential risks being wasted.

A government that consults, provides forward guidance, and avoids sudden reversals can unlock enormous investor confidence.

Unfortunately, recent history shows that India is still far from that goal.

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