It is a type of governance in which decisions and policies are guided by a set of protocols and procedures instead of arbitrary executive power.

Impact of lack of rule based governance and also the result of its presence:

  1. Crony interests are created and political process is manipulated to serve these interests.
    1. With money power increasingly driving the political process that, in turn, creates a vicious cycle of money and political success to those pandering to or backed by crony capitalists.
  2. Political connections determine success.
    1. This phenomenon, also written about by Reserve Bank of India governor Raghuram Rajan before taking office, shuts out ‘un-connected’ entrepreneurs from opportunities and participating in the economy.
    2. This, in turn, has structural implications on issues such as innovation, competition and efficiency—all important elements for a successful, sustainable economic model for a country like India.
    3. In a remarkable example of how thoughtful, transparent policies can lift up countries, Estonia, which was economically crippled due to the Soviet annexation from the 1940s to 1991, lifted itself up to become a country with the highest number of start-ups per capita. This was done through a host of market reforms since the mid-1990s—including free trade and privatization—designed to remove red tape and simplify the process of starting a business and, most importantly, following well laid-out processes.
  3. Rule-based governance creates transparency in its functioning and improves the trust between citizens/investors and government.
  4. A rule-based economy creates a framework that boosts efficiency, competition and opportunity for all investors.

It also has the effect of reducing the impact of money and cronyism on politics and democracy.