There are different due dates, multiplicity of forms and formats, duplication and redundancy in record-keeping requirements, complex procedures, ambiguous interpretations, leading to a really complex regulatory environment.
Rishi Agrawal, co-founder & CEO, Avantis Regtech
Rishi Agrawal, co-founder & CEO, Avantis Regtech (a Teamlease company), is of the view that with the codification of Central Labour Acts, the compliance burden of industry will significantly reduce. In an interview with FE, he, however, said the government should continuously pursue reforms. Edited excerpts:
What is the level of compliance burden for an industrial establishment now? India has a universe of 1,536 Acts, 69,233 compliances and 6,618 filings across central and state governments. Approximately 44% of the Acts (677) and 37% of these compliances (25,537) are at the central level. A small company with one factory in a single state deals with over 750 compliances and 120 filings across 60 Acts. The number grows exponentially as the company becomes multi-business and multi-locational. A mid-sized manufacturing company with five-six factories across multiple states deals with over 5,500 compliances and 530 filings in a year. There are different due dates, multiplicity of forms and formats, duplication and redundancy in record-keeping requirements, complex procedures, ambiguous interpretations, leading to a really complex regulatory environment. In addition, the regulatory environment in India is fluid and laws change over 3,000 times a year. Staying on top of all the regulatory changes and compliant is challenging.
Do you see the new labour codes ensuring the ease of doing business? Yes, taking 29 Central Labour Acts and subsuming them under four codes is a step in the right direction. This will help reduce the number of licences, registrations, permissions and renewals. In addition, the number of periodic returns that are currently required under different Acts will get dramatically reduced. As an example, there is one annual return each under Minimum Wages Act, Payment of Wages Act and Payment of Bonus Act. However, with Code on Wages, three different annual returns will be replaced by a single annual return. Similarly, an MSME is required to maintain at least 10 different formats of wage registers, four different formats of accident registers, four different formats of muster rolls under different Acts. With codification, we expect the compliance burden to reduce significantly.
What about the licensing requirements? Codification of labour laws will lead to a significant reduction in the number of licences, registrations, renewals, returns and registers required under different Acts. However, labour is on the concurrent list of the Constitution and both central and state governments legislate labour laws. States have the right to formulate specific rules with respect to applicability thresholds, forms, formats, calculations, dates, frequencies, authorities, filing types (paper-based vs. digital), among others. Codification is a great opportunity to rationalise and simplify labour laws by way of reducing redundancy, duplication and ambiguity. As states notify the rules, the real picture of complexity on the ground will emerge.
Is there any scope of reducing the compliance burden further? Yes, there is a lot of scope for further reduction in compliance and regulatory complexity. Codification is targeted at rationalising India’s labour laws. It is a first-of-its-kind initiative to fundamentally reform labour laws post Independence. It is, in fact, bigger than the indirect tax reform where 17 different indirect tax regimes were subsumed under GST. Similar reforms are required in other compliance categories as well. These include environment health and safety, commercial, secretarial and industry-specific. As a country, we need to train our eyes on the framework and practices of the developed world instead of trying to compete with Vietnam and Bangladesh.
Will India be able to catch the fancy of the global investors with the easing of labour regulations? India is the fifth-largest economy in the world in terms of GDP and 138th in terms of GDP per capita. Our 63 million enterprises translate into only one million formal enterprises. This is due to a perceived high cost of formalisation and sharp increase in compliance burden for formal enterprises. The current compliance burden is a binding constraint in attracting capital and creating new formal jobs. I think, introduction of GST followed by codification of labour laws will help alleviate the situation. However, there is still a long way to go. The government should continue to aggressively pursue reforms and unshackle India’s entrepreneurs to help them realise the dream of a $5-trillion GDP.