Stating that a huge compliance burden has been hampering the ease of doing business in general and the growth of the manufacturing sector in particular, a new report pitched for a thorough review of all provisions for jail terms for non-compliance by employers, and decriminalising technical and procedural lapses, immediately.
In addition, the report tilted ‘Jailed for Doing Business’, prepared by Teamlease in association with Observer Research Foundation (ORF), has recommended constituting a regulatory impact assessment committee and sunset clauses in India’s business laws.
Of the 1,536 laws that govern doing business in the country, more than half carry imprisonment clauses. Of these, 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 level.
“Of the 69,233 compliances that businesses have to follow, 37.8% (or almost two out of every five) carry imprisonment clauses. More than half the clauses requiring imprisonment carry a sentence of at least one year,” said the report.
The largest number of imprisonment clauses are found in labour laws, with more than 50 such clauses per law. At least 1 in every 3 clauses are from the Factories Act, 1948 clearly pointing to one of the key reasons why Manufacturing in India has failed to take off and create jobs, the report said.
Five states have more than 1,000 imprisonment clauses in their business laws: Gujarat (1,469 imprisonment clauses); Punjab (1,273); Maharashtra (1,210); Karnataka (1,175); and Tamil Nadu (1,043). For some laws, delayed or incorrect filing of a compliance report is an offence for which punishment stands on par with sedition under the IPC, 1860.
“For over seven decades, the Indian entrepreneur has been a victim of overregulation. The legacy framework has shunned entrepreneurs, viewed them with distrust and used criminality as a tool for control. It is high time that policymaking is reimagined. India’s entrepreneurs need greater dignity and freedom to make investments, create wealth and jobs,” said Rishi Agarwal, one of the co-authors of the report.
The report finds the woes of the business does not end there. It said over the three years from 2019-2021, there were 11,043 changes in compliance requirements. This translates to an average of 10 regulatory changes every single day.
The report argues that the criminalisation of business laws violates Indian business traditions: From the Mahabharata to the Arthashastra, criminality was never a part of punitive action against businesses in ancient India — only financial penalties were. Stating that reforming these clauses was necessary to restore dignity to entrepreneurship in India, it suggests the government to use criminal penalties in business laws with extreme restraint, involve all independent economic regulators in compliance reforms and end the criminalisation of all compliance procedures among others.