Revamping India’s Compliance Framework

GS III-Infrastructure

Context:

Excessive regulatory compliance and corruption have emerged as significant barriers to business growth in India, as highlighted in a recent The Hindu report.

Economic Consequences of Corruption

• Increased Operational Costs: Frequent demands for bribes raise the cost of doing business.
• Deterrence to Foreign Investment: Nearly 80% of foreign investors cite corruption as a major impediment to investment.
• Restricted Entrepreneurial Growth: Complex bureaucratic procedures discourage startups and small businesses.
• Slower Job Creation: Funds diverted toward bribery reduce investment in business expansion and employment.
• Inefficient Systems: Frequent changes in compliance rules disrupt operations and lower productivity.
• Damage to Global Reputation: Persistent corruption undermines India’s image as a credible business destination.

Challenges in Regulatory Compliance

• Regulatory Extortion: Authorities exploit compliance laws to demand bribes.
• Frequent Compliance Changes: Over 9,420 regulatory updates in a single year (averaging 36 per day) create confusion.
• Arbitrary Powers of Inspectors: Officials have unchecked authority to impose fines and penalties.
• Outdated Labour Laws: Despite new labour codes, their implementation remains slow and inconsistent.

Recommended Reforms

1. One Nation, One Business ID: Businesses currently manage 23 different identification numbers; a unified ID would simplify compliance and curb corruption.
2. Jan Vishwas 2.0 Initiative: Decriminalizing minor compliance infractions can reduce bureaucratic harassment.
3. Labour Law Enforcement: States should expedite the implementation of labour reforms to facilitate ease of doing business.
4. Annual Compliance Review: Regulatory bodies should adopt a predictable update system, following the FSSAI model.
5. Digital Integration: A unified business ID and DigiLocker can streamline compliance processes and minimize opportunities for bribery.
6. Reducing Bureaucratic Discretion: Introducing transparency and accountability in regulatory procedures is essential for an efficient governance framework.