Overhauling the compliance framework
Kartavya Desk Staff
Syllabus: Government policies and interventions for development in various sectors and issues arising out of their design and implementation:
Source: TH
Context
India’s business environment faces challenges from corruption, frequent compliance updates, and regulatory inefficiencies. Despite reforms like the Jan Vishwas Act (2023) and the proposed Jan Vishwas 2.0, businesses continue to struggle with complex compliance systems. Introducing a unified compliance identity system and ensuring predictable regulations is crucial for improving India’s investment climate.
Key challenges in the existing compliance framework
• Widespread bribery practices: The India Business Corruption Survey 2024 reveals that 66% of businesses admitted to paying bribes, with 54% coerced for permits, licences, or approvals.
• Excessive compliance updates: In 2024 alone, India experienced 9,420 compliance updates, averaging 36 daily changes, creating confusion and providing officials with opportunities to exploit ambiguity.
• Regulatory exploitation: Inspectors misuse subjective powers to threaten factory shutdowns or imprisonment, even when businesses comply with rules, fostering corruption.
• Unresolved labour code delays: Despite consolidating 29 colonial-era labour laws into four new Labour Codes, delays in implementation continue to burden businesses.
• Fragmented compliance framework: Businesses are required to manage 23 different identity numbers, including PAN, GSTIN, and CIN, resulting in excessive paperwork and frequent renewals.
Implications
• Corruption-Induced Compliance Costs: Businesses are forced to pay bribes even after meeting regulatory requirements, driving up operational costs.
• Productivity Losses: Time spent addressing frequent compliance updates and facing inspections reduces overall business efficiency and hampers growth.
• Stunted MSME Growth: Startups and MSMEs struggle to navigate complex regulations, delaying permits and increasing costs, limiting their ability to scale.
• Trust Deficit in Governance: The unchecked power of inspectors and frequent compliance changes weaken business trust in regulatory authorities.
• Operational Delays: Unpredictable rule changes, such as the 9,420 compliance updates in 2024, create disruptions in business operations, supply chains, and production cycles.
The Global Context and Strategic Imperatives
• Competitive Disadvantage: The United States has launched the Department of Government Efficiency (DOGE) to simplify business operations. If the US improves its efficiency further, India’s $4 trillion economy risks losing investments to the US’s $27 trillion economy.
• Manufacturing Slowdown: Regulatory complexities and excessive compliance rules hamper India’s ambition to become a global manufacturing hub, particularly in sectors like pharmaceuticals and textiles.
• Investor Perception Damage: India’s reputation as a complex regulatory environment discourages long-term foreign investment, limiting the benefits of initiatives like Make in India.
• Entrepreneurial Exodus: Burdensome regulations are driving Indian start-ups to relocate to more business-friendly nations, reducing India’s potential as a hub for innovation and growth.
• Digital Gap in Compliance: While India’s Digital Public Infrastructure (DPI) has revolutionized sectors like digital payments, compliance systems remain fragmented, hindering India’s ability to fully modernize its business ecosystem.
Key Reforms and Solutions for Compliance Overhaul
• Jan Vishwas (Amendment of Provisions) Act, 2023: This act decriminalised 180 provisions, reducing the risk of imprisonment for minor business violations, marking a positive step toward reducing regulatory harassment.
• Jan Vishwas 2.0: The proposed bill seeks to decriminalise 100 additional provisions, but with 20,000 imprisonment clauses still in place, a more extensive overhaul is necessary.
• FSSAI’s Annual Update Model: The Food Safety and Standards Authority of India (FSSAI) now restricts food label regulatory changes to once a year, ensuring stability in compliance requirements.
• ‘One Nation, One Business’ Identity System: Consolidating 23 identifiers (such as PAN, GSTIN, and CIN) into a unified identity system would reduce paperwork, improve compliance efficiency, and minimize corruption.
• Digi Locker for Businesses: Establishing a tamper-proof document repository where businesses can upload verified documents would significantly reduce opportunities for corruption in approval processes, mirroring the success of Digi Yatra in streamlining airport security.
Conclusion
To sustain growth, India must transition to a transparent, predictable, and digital-first compliance system. Implementing the Jan Vishwas 2.0, enforcing the Labour Codes, and adopting a ‘One Nation, One Business’ Identity System are essential to reducing corruption, attracting investment, and promoting business growth. Delay in reforms risks undermining India’s economic potential.
• ‘In the context of neo-liberal paradigm of development planning, multi-level planning is expected to make operations cost effective and remove many implementation blockages.’-Discuss. (15 M) (2019)