By Rishi Agrawal
India’s 63 million enterprises translate into only a million formal employers. More than 98% of Indian employers stay dwarf with no access to institutional capital, talent, technology and supply chains. They employ an average of under three employees and are not bound to pay minimum wages, offer social security or provide safe and hygienic working conditions. This multidimensional problem has deep roots in India’s complex regulatory environment, which levies a ‘formalisation’ tax on employers. This can take the form of over 400 compliances a year that become applicable after formalisation. As a result, there are clear incentives to stay small and informal.
India’s challenge is not to create more enterprises but to nurture existing enterprises. If it could convert just 10% of its 63 million enterprises to formal, 100 million new formal jobs can be created. However, the key binding constraint is high regulatory cholesterol (a universe of 1,536 Acts and 69,233 compliances, which change over 3,000 times a year). Here are some suggestions for ease of doing business agenda for the government.
Constitute a National Compliance Commission: India’s regulations need an urgent review. An empowered commission must be set up to reduce the compliance burden by at least 50%. It should focus on identifying duplication and redundancy among compliance requirements. The commission should remove ambiguity, standardise implementation and simplify record keeping.
Create UEN (Unique Enterprise Number): Indian enterprises deal with multiple identities (PF, ESIC, PAN, CIN, TAN etc.) issued by different central and state departments. There is often no single source of truth to build a corporate profile. This can be resolved with a UEN along the lines of Aadhaar. All departments of the government and financial institutions will register an enterprise based on UEN. It will help create a holistic corporate profile for governance, credit, risk and compliance.
Create enterprise document vault: India needs to go paperless. Managing paper is inefficient, expensive and non-sustainable. The concept of electronic document vault DigiLocker should be extended to enterprises. All documents (licenses / registrations / permissions / consent orders / notices etc) issued to an enterprise will be delivered by government departments to the vault. The documents can be retrieved by inspectors, financial institutions and other government departments upon consent. The UEN-based corporate profile of credit and risk along with an e-document vault will reduce document forgery and fraud, leading to deeper credit penetration and reduce NPAs.
Strengthen commercial courts infrastructure: India’s commercial court system needs an overhaul. It takes 1,445 days to dispose of a commercial case as against 120 days in Singapore. While India ranked 63 in World Bank’s EoDB rankings, it ranked a poor 163rd in enforcing contracts. Millions of commercial cases compete with civil cases for their turn for months in regular courts leading to delays. The government should expedite capacity building (judges, staff, courtrooms, e-hearings, etc) in hubs of economic activity in the country for faster disposal of cases, slashing the turnaround time by at least 50%.
Digitise compliance management: Compliances must go digital. Today, an entrepreneur deals with over 70 different licenses, registrations and approvals (related to entity, land, trade, construction, fire, electricity, labour, environment, weights and measurements etc.) to start his manufacturing setup. An MSME deals with at least 400 compliances annually on an on-going basis. The process is manual, paper-based and requires physical contact with government officials leading to delays and opportunities for corruption. All compliances should go digital with a vision of creating paperless, presence-less, cashless and faceless systems. This will enhance transparency, accountability and timeliness.
Digitise regulatory updates: With over 3,000 yearly regulatory changes that affect enterprises, India needs a centralised repository of all updates. Currently, they are published on at least 2,233 different websites at union, state and local levels. These changes affect an enterprise’s obligations as they notify changes to dates, duty structures, revisions to forms, penalties, calculations, among others. The onus is on an enterprise to periodically visit the websites, discover the changes and evaluate applicability. The government needs to create a centralised repository (electronic gazette) of all regulatory changes that impact the enterprise. There should be personalised notifications based on preferences of industry, ministry, department, state, categories and types.
Digitise inspections: An MSME in India can be inspected by as many as 20 inspectors at any time. The current inspection system is manual, paper-based and requires physical contact. The system is so dreaded that it is called ‘inspector raj’ in popular parlance. There is an urgent need to reimagine the current system and replace it with a consolidated, risk-based and digital system with built-in self-certification and third-party inspections.
The last six years have been exciting from an EoDB perspective. India has jumped from 142nd rank in the World Bank EoDB in 2014 to 63rd in 2019. The low hanging fruit has been plucked. The road ahead will need deeper and more impactful reforms at all levels. These reforms will require tougher decisions, laser-sharp focus and greater allocation of resources. I am hopeful that India can get to its destiny of becoming a $10 trillion economy at the end of this decade.
The author is Founder & CEO, Avantis Regtech – A TeamLease Group Company. Views are personal