Businesses choose to operate covertly in India due to the country’s exploitative regulatory system
One of India’s biggest reforms since 1991 will occur if the government’s proposal to introduce a “holistic decriminalisation” bill in the Winter Session of Parliament becomes law. According to Piyush Goyal, the minister for commerce and industry, one goal of this new bill is to “stop harassment and minimise the regulatory burden on businesses.” The proposed Bill is currently the property of Parliament and has not been made available to the general public, hence the contents are lacking.
It would be a reform that should put an end to the pervasive harassment, corruption, and rent-seeking by officials of the Union government when viewed through the prism of the government’s goal to make India an investment destination for both domestic and foreign capital. When criminal provisions in state laws and regulations are similarly rationalised, corruption by state government officials will come to an end. Some of these will be rationalised with changes to Union laws that are implemented by state governments. Here are some statistics from the Jailed for Doing Business Research report from the Observer Research Foundation to put the decriminalisation issue in perspective:
- There are 1,536 statutes in the corporate regulatory universe, and 843 of them, or more than half, contain provisions for incarceration. A total of 69,233 compliances are required under these regulations, and 26,134 of them, or nearly two out of every five entail jail punishment.
- 28.9%, or 244 laws, of the 843 laws that contain provisions for incarceration have been passed by Parliament; the remainder have been approved by State legislatures and regulations.
- 5,239 of the 26,134 compliances with imprisonment provisions—or 5 percent—are found in Union laws.
What do these numbers mean and how do they show up?
- Only 1 million of India’s 69 million businesses are legal employers, which prevents the remaining 68 million informal businesses from having access to institutional financing, talent, or supply networks and as a result of that lacks investment. According to business research, small may not be beautiful, but it is definitely safe when it comes to business or enterprise due to the predatory and rent-seeking policy infrastructure in India.
- For instance, a small business with 150 or more employees must handle 500 to 900 compliances annually, and by employing consultants to be in compliance with labor laws, taxes, factories, and other regulations, it may wind up paying up to INR 12–18 lakhs.
- This results in a regulatory bias against small enterprises since, up until a certain point, running a compliance department is expensive. For the owner-manager of a small business, compliance is more of a risk-management tactic than anything else—almost an economic activity.
The government is making progress when it lowers the compliance burden to the point that harassment is eliminated. This is a law that needs to go through the process of proper business research, and the debate between parties and then be passed into an act in order to avoid any policy gaps being left behind. Political opposition will undoubtedly exist. The government must reject the rhetoric and accept the answers for the sake of the nation as a whole. First-generation economic reforms in India, which got underway under Prime Minister PV Narasimha Rao, turned the country’s economy around. The License-Permit-Quota Raj, an evil regime that stifled the Indian economy for 44 years, was overthrown by this strategy. Six prime ministers, including Inder Kumar Gujral, Manmohan Singh, and the current Narendra Modi, oversaw the second phase of reforms, starting with Rao, Atal Bihari Vajpayee, and HD Deve Gowda. Between 1991 and 2021, a total of 69 significant revisions were implemented. These include, but are not limited to, the liberalisation of trade, the transfer of control over the economy and investment opportunities to regulatory agencies like SEBI and CCI, and the implementation of the goods and services tax.
The nation is now preparing for third-generation changes under Prime Minister Narendra Modi. Reforms that rationalize incarceration and compliance provisions are among them; they keep a small number, reduce or eliminate the majority, compound the remainder, and convert physical jail into monetary penalties. It is necessary to dismantle the colonial, corrupt, and rent-seeking policy superstructure that represents the Inspector Raj in order to develop large-scale businesses and enterprises, wealth, and employment. For a developing country, getting to the point where India’s GDP is worth $30 trillion by the middle of the 21st century is essential. India must use every policy tool at its disposal to bring about change. One such fast track to riches is the decriminalisation law that has been suggested.