Ease of doing business 2.0: Ask the right questions

Livemint, March 23, 2022

By Pradeep S. Mehta,

Compliance easing must be transparent and reasoned out with every rule put to a strict justification test

WIn her budget speech, Finance Minister Nirmala Sitharaman expressed the government’s resolve to launch Ease of Doing Business 2.0 and Ease of Living programmes. To this end, she highlighted that in recent years, over 25,000 compliance requirements were reduced and 1,486 Union laws repealed. What was the nature of these compliances and laws? For how long did these remain in the statute books and through what process were these identified, reviewed and discarded? No additional information was provided in the budget or its accompanying documents.

A few days later, the minister of heavy industries clarified in the Rajya Sabha that this number (the clarification pegged the figure at over 27,000 compliances as on 7 February) was based on aggregates of data uploaded on the Regulatory Compliance portal by central ministries/departments and states/Union Territories. The portal, while live, remains inaccessible to the public, so the figure and its relevance cannot be put to open scrutiny.

As far as the repeal of laws goes, other than the farm laws’ withdrawal last year, the last Repeal and Amending Act was passed in 2019, and before that, two such acts were passed in 2017; 302 laws and 9 ordinances were repealed under these laws. In 2018, the National Commission of Backward Classes Act and legislations constituting subsidiaries of the State Bank of India were repealed. It is not clear how far back in time one would need to go to reach the official claim of 1,486.

Moreover, several repealed laws were mostly archaic in nature and did not necessarily impact the business environment. These include the Case Disabilities Removal Act, 1850, and the Fort William Act, 1881. It is difficult to estimate the impact of such repeals on the ease of doing business in the country. The numbers may just be used to buttress the government’s image without moving the needle on the ground, as is often the case.

The point is that the objective of any compliance and its dropping should be clear and legitimate. One should be aware of what each compliance requirement was intended to achieve and what benefits are likely to accrue through its repeal. For this, India’s regulatory reform exercise needs to be transparent and inclusive in nature, and open to public enquiry. Secrecy gives rise to suspicion and is antithetical to trust, which is essential to governance.

Another important issue to consider is this. While the reduction in compliances may be laudable, was the government was able to resist the temptation of issuing additional requirements in recent years? The government may not have a clear response, but a recent report by Observer Research Foundation and Teamlease, titled Jailed for Doing Business, answers this in the negative (bit.ly/3GTeo5C). It estimates that about 3,000 new compliances have hit businesses every year. At this rate, in just eight years, about 25,000 new compliance requirements are likely to be issued, negating the gains of the compliance-reduction exercise. To avoid such scenario, the government will need a mindset change towards Ease of Doing Business 2.0 (EoDB 2.0). Indeed, it must realize that it is as much a part of the problem as it wants to be part of the solution.

As is the case across sectors, the government has hitherto relied on digitization to improve transparency and contain duplication and delays in its compliance framework. It seems to believe that treading along this path of leveraging technology, with incremental changes like integration of central and state systems and enabling single-point access of citizen centric services, will result in trust-based governance. These measures are necessary, but not sufficient to EoDB 2.0.

Focusing on just the stock of compliances without stemming their flow is unlikely to have a positive impact in the long run.

The government will need to trust entrepreneurs on playing by the book, acknowledge the existence of a usual proportion of deviants, and make it harder for itself to issue new compliances. Instead of requiring stakeholders to highlight overlaps and build a case for standardization and reduction, the burden of proof needs to be reversed. That is, the government should be required to justify the need for every additional compliance requirement at the time of its issuance. Such an exercise should also attend existing compliances from time to time.

In addition to being necessary, any compliance requirement must be proportionate. The ORF-Teamlease report suggests that there are 26,134 imprisonment clauses in India’s business laws. The budget introduced an additional one by making the publication of import and export data an offence punishable by a jail term. One wonders whether these provisions are proportional to the nature of such violations. Evidence suggests that micro, small and medium enterprises bear a disproportionate compliance burden and are required to incur substantial compliance costs, which contribute to their remaining stunted.

For EoDB 2.0, the government must ask itself three questions about every existing and proposed compliance: Is it legitimate? Is it necessary? And, is it proportionate? Only if a requirement passes all three tests should it be retained or added to Indian statute books; else, it should be junked. Asking these questions would also be the key to improvements in India on our ease of living.

Amol Kulkarni, director, research, CUTS, contributed to this article.

Pradeep S. Mehta is secretary general, CUTS International.


This news item can also be viewed at: