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Overhauling India’s Compliance Framework: A Necessity for Business Growth
Context:
The “India Business Corruption Survey 2024” highlights that 66% of business entities admitted to paying bribes, with 54% coerced to do so for regulatory approvals and compliance.
- Compliance and regulatory frameworks are critical for ensuring transparency and accountability in business operations. However, in India, compliance provisions often become tools for corruption, red-tapism, and inefficiency, impeding economic growth.
Challenges in the Current Compliance System
- Excessive Compliance Burden and Corruption
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- Compliance provisions are frequently used by officials in labour, GST, income tax, pollution control, and other regulatory bodies to extract bribes.
- Subjectivity granted to inspectors allows them to threaten imprisonment or business shutdowns without accountability.
- Corruption is a major deterrent to Foreign Direct Investment (FDI), with 80% of businesses acknowledging it as a challenge (EY-FICCI survey).
- Frequent Regulatory Changes
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- 9,420 compliance updates in the past year (average of 36 daily changes) create uncertainty for businesses.
- Constant regulatory flux indicates either poor governance or deliberate manipulation to create avenues for corruption.
- FSSAI’s recent directive to announce food label changes only once a year is a positive step towards stability.
- Labour Law Reforms Stuck in Limbo
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- India replaced 29 colonial-era labour laws with four modern labour codes, but implementation delays have stalled progress.
- Labour laws fall under the Concurrent List, requiring state governments to act swiftly to operationalise reforms.
Government Initiatives and Gaps
- Jan Vishwas (Amendment of Provisions) Act, 2023
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- Decriminalised 180 provisions related to imprisonment for businesses.
- A step forward but inadequate as over 20,000 provisions with imprisonment clauses remain.
- Jan Vishwas 2.0 (Budget 2025 Announcement)
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- Proposes to decriminalise 100 additional provisions.
- While welcome, the reform does not address the root issues of bureaucratic inefficiency and compliance overload.
The Way Forward: Digital-First Approach
- Simplifying Business Identity and Documentation
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- Currently, businesses navigate at least 23 different identity numbers (PAN, GSTIN, CIN, etc.), leading to inefficiencies.
- Introducing a ‘One Nation, One Business’ Identity System could simplify compliance and reduce corruption.
Global Perspective: The Need for Urgent Reforms
- The United States is implementing governance reforms through the Department of Government Efficiency (DOGE) to streamline business operations.
- If advanced economies further simplify business regulations, investors will prefer them over India’s red-tape-heavy environment.
- Without reform, India risks losing both investment and entrepreneurial talent, crucial for its knowledge economy.
- A centralised digital repository (digi-locker) could allow regulatory access to authenticated documents, cutting approval times from months to days.
- Learning from Successful Digital Public Infrastructure (DPI) Models
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- India’s Digi Yatra has streamlined airport security using a unified digital identity.
- Applying similar models to business compliance can enhance ease of doing business and investor confidence.
