Ease of Doing Business for MSMEs: Even as the government has been looking at easing regulations around doing business in India, there are still 26,134 imprisonment clauses as penalties for non-compliance with business laws enacted since independence, a new report on imprisonment clauses in Indian business compliance regulations framework said on Thursday. India has 69,233 unique compliances that regulate doing business in the country, of which 26,134 clauses have imprisonment clauses, in other words, almost two out of five compliances can send an entrepreneur to jail, according to the report Jailed For Doing Business by TeamLease RegTech and Delhi-based independent think tank Observer Research Foundation.
The report said excessive compliances are especially burdensome on MSMEs as a typical MSME, having more than 150 employees, faces 500-900 compliances that cost Rs 12-18 lakhs in a single year. “This regulatory overreach impacts not just entrepreneurs running for-profits, but not-for-profit institutions as well. There is a widening gap between the goods and services the country needs and how the state views the entrepreneurs creating them.”
The monograph is a first-of-its-kind consolidation of business compliance data that had, till date, only existed in silos across ministries and departments, TeamLease RegTech said in a statement launching the report. Collated over the past seven years, the monograph has classified the data into seven broad domains — labour, finance and taxation, environment, health and safety, secretarial, commercial, industry-specific, and general, the statement added.
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“The excessive criminalization of India’s employer compliance universe breeds corruption, blunts formal employment and poisons justice,” said Manish Sabharwal, Vice Chairman of TeamLease. “This report is a wonderful contribution to ideas for actionable reforms; the government has made a good start in purging compliances but truly reducing regulatory cholesterol requires extending that project to purging the 26,134 jail provisions for employers at the centre and state.”
The report said the disproportionate focus on imprisonment in the law-making process can be observed in several legislations. For example, acts of sedition can attract a sentence of one to three years — similar to not whitewashing latrines and urinals once every four months. Currently, five states Gujarat, Punjab, Maharashtra, Karnataka and Tamil Nadu have over 1,000 imprisonment clauses in their business laws.
Among the ten recommendations the report offered to rationalise the excesses of business laws, it said using criminal penalties with restraint and constituting a regulatory impact assessment committee could lay the foundation of policy reformation. Further, it recommended rationalising imprisonment clauses. For example, removing criminality from procedural lapses and inadvertent omissions while retaining imprisonment for wilful transgressions including but not limited to loss of life, destruction of environment and evasion of taxes.