Edukemy Gazette

‘Jailed for doing business’ report

‘Jailed for doing business’ report

In News

 A report by TeamLease RegTech and the Observer Research Foundation titled, ‘Jailed for doing business’ delves into the compliance burden on Indian firms.

Many laws and compliances for Indian businesses

  • The legislations, rules and regulations enacted by the Union and State governments have over time created barriers to the smooth flow of ideas, organisation, money, entrepreneurship and through them the creation of jobs, wealth and GDP.
  • There are 1,536 laws that govern doing business in India, of which 678 are implemented at the Union level.
    • Within these laws is a web of 69,233 compliances, of which 25,537 are at the Union leve
    • These compliances need to be communicated to the governments through 6,618 annual filings.
  • The changes in compliance requirements, to the tune of an average of 10 regulatory changes every single day, occur constantly and add to business uncertainty.
  • By taking one policy tool — imprisonment — this report highlights the excesses of overregulation and the resultant regulatory cholesterol while doing business in India.

Criminalising Non-compliance

  • The biggest challenges come from the continuance of imprisonment as a tool of control.
    • Of the 1,536 laws that govern doing business in India, more than half carry imprisonment clauses.
    • More than half the clauses requiring imprisonment carry a sentence of at least one year.
  • Laws like the Companies Act, 2013, The Factories Act, 1948 and even minor ones like the Legal Metrology Act, 2009, the Electricity Act, 2003, the Motor Vehicles Act, 1988 contain clauses that criminalize non-compliance, with jail term as high as 10 years.
  • Several of these clauses criminalise process violations, while some of them punish inadvertent or minor lapses rather than wilful actions to cause harm, defraud, or evade.
  • For some laws, delayed or incorrect filing of a compliance report is an offence whose punishment stands on par with sedition under the Indian Penal Code, 1860.
  • The largest number of imprisonment clauses are found in labour laws, with more than 50 such clauses per law, second comes industry laws.

Problems with criminalizing

  • Historically, in Mahabharata to Arthashastra, criminality was never a part of punitive action against businesses in ancient India. Financial penalties constituted most of the punitive action.
  • Excessive regulation has made compliance a full-time department of firms, and placed an unnecessary burden on micro, small and medium enterprises (MSMEs).
    • A typical MSME with more than 150 employees faces 500 to 900 compliances that cost Rs 12 lakh to Rs 18 lakh a year.
  • It furthers the rent-seeking climate in the bureaucracy which has been validated by anecdotal and analytical evidences.
  • Programmes like ‘Make in India’, ‘Ease of doing business’ etc. get stalled due to the regulatory burden of criminalised laws. Several companies remain small to stay below the radar of compliance burden.

Measures taken by the government

  • Amendment of Labour laws and the subsumption of the 29 central labour laws into four labour codes—Code on Wages, 2019; Occupational Safety, Health and Working Conditions Code, 2020; Code on Social Security, 2020; and Industrial Relations Code, 2020 – will reduce the imprisonment provisions by half.
  • All the States are yet to implement the labour codes.

Way forward

The report lists recommendations to ease the regulatory compliance burden:




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