'Root cause is low trust': CEA Nageswaran on repeated KYCs and how to fix them

Chief Economic Advisor Dr V Anantha Nageswaran said India's regulatory mindset often punishes the majority for the faults of a few, calling for a shift from bureaucratic overreach to trust-based governance.

Speaking in a podcast conversation with Monika Halan for Groww, he said blanket compliance requirements like repeated Know Your Customer (KYC) checks exemplify how policy tends to inconvenience millions to control a handful of violators.

"I personally do not have a vehicle. I'm not familiar with the details of this particular requirement. Although I have also come across some people forwarding some messages to me... but I hear you that in general this exactly is what I mean by saying letting go," Nageswaran said when asked about reports of Know Your Vehicle (KYV) processes being introduced to curb Fastag misuse. "The mindset is still to sort of—if you have a problem with a few, then you impose an omnibus requirement on everybody—and this has to change."

He said this tendency stems from a policymaking bias to "not let even one person evade the rule," creating systems that inconvenience the majority. "Do you want to allow a vast majority to continue their activity unhindered and accept the possibility that some five to seven or 10% will continue to evade...or do you want to ensure that I will not let anybody take a shortcut—and in the process construct a very elaborate mechanism?" he asked.

Nageswaran added that even private institutions display similar habits. "Even in private sector financial institutions, even in a situation where I have a relationship with one particular arm of the bank...if I have to open a credit card or a locker, they ask for the same information all over. So this seems to be the cultural ethos," he said.

The CEA linked this behavior to India's deeper social dynamics. "I have also argued that we are a relatively low-trust society. This goes back to the excellent book I read during COVID times by Joseph Henrich, The WEIRDest People in the World, where the 'WEIRD' word stands for white, educated, industrialized, rich, democratic. Our societies are mostly kinship group and community-based, and within those small groups we are extremely trusting...but just outside those groups we become extremely low-trusting," he said.

He said this lack of trust extends to business contracts and government dealings. "That is why we have so many renegotiations between the government and the private sector, between private sector entities themselves. That is because these kinship community-based societies have evolved that way," he explained.

According to Nageswaran, the government must lead the change by making it easier to comply. "So the root cause of this is the low trust. I feel somebody has to make a start, and the government is well placed to start, and that's why I'm saying if we lower the cost of being honest or make it easier to be honest, that will then slowly permeate down to private sector transactions also - and then honesty builds trust, trust in turn builds scale. So it is both - a cultural phenomena as much as it is a government regulatory phenomena."