Atmanirbhar Bharat Needs To Measure Cost Of Doing Business
“There are risks, and there are cost to action. But they are far less than the long-range risks of comfortable inaction.” John F. Kennedy
The extended lockdown across the world due to the COVID-19 pandemic has significantly impacted economies around the globe. The US and Europe are witnessing an upsurge in the number of corporate bankruptcies filed, due to extended lockdown in COVID-19. The scenario would have been no different in India if the Government had not suspended bankruptcy proceedings for one year.
IMF has predicted that the Indian economy will contract by 4.5% in 2020-’21, while the global GDP will decline by 4.9% during the same period. Like every other economy, India has responded to lessen the impact of this pandemic. A core part of the Government response is to look at the crisis as an opportunity setting out the vision of building an Atma Nirbhar Bharat.
We fundamentally agree with the opportunity, and the vision of self-reliance will help strengthen the domestic ecosystem and make the country more globally competitive. At the same time, we also argue that sustaining economic growth in the next phase; will depend significantly on fundamental reforms to support de-regulation/improved regulatory delivery.
Over the past few years, India has been making efforts to undertake focussed reforms to enhance competitiveness and improve the Ease of Doing Business (EoDB). Despite the headway that the country has achieved in the World Bank’s EoDB rankings and in reducing archaic laws as well as bringing in fiscal regime (including corporate tax rate) which is extremely competitive, the country continues to be saddled with a high cost of compliance and we underperform to our potential.
The regulatory compliances and day to day interactions (outside of Mantralayas and Sachivayalas) continue to be a challenge to most companies. Challenges companies find it difficult to reconcile with social media and public reporting of improved EoDB raking, 99% compliance in State Ease of Doing Business to day to day reality.
We do believe India has made significant strides in automating and digitising our processes. Business Reform Action Plan (BRAP) was a great initiative. However, the incremental benefit of pure digitisation of existing processes will not move the needle for the vision of Atma Nirbhar Bharat. It is now time to reimage the Ease of Doing Business to start focusing on regulatory reform and indeed, the formal and informal cost of compliance, i.e. Cost of Doing Business.
The recent report by Teamlease highlights that the Indian business ecosystem continues to be saddled by a complex regulatory environment. Currently, Indian businesses are burdened with more than 65,000 compliances, with more than 2,500 regulatory updates in a year and more than 3,000 filings. A medium-sized manufacturing enterprise requires more than 95 licenses or registrations for setting up and running the business.
Stringent labour laws have limited the country from unlocking value in term of productivity and employment. India’s labour regulations are amongst the critical regulatory burden for the industry with more than 40 labour laws at the state level. These include both laws enacted by Central Government and enforced by state governments (such as The Contract Labour Act, 1970, Equal Remuneration Act, Industrial Disputes Act, etc.) and laws enacted & enforced by the State Governments (such as The Factories Act, 1948, The Motor Transport Workers Act, 1961 etc.) Most of them require registrations and renewals along with the requisite compliances, including labour filings.
Majority of these regulatory compliances require businesses to make multiple physical visits to the government agencies in the state to obtain approval. Several states have introduced online systems, including Single Window Systems (SWS) for obtaining such approvals; however, there are still significant implementation gaps and monitoring of these systems through third party audits will help improve even the existing systems.
The Government should now focus on transformational interventions that support ease of regulatory compliance related to enforcing contracts, monitoring and evaluation, common identifier and toolset including data services, standardisation of rules, forms and reports across departments and baselining data. These interventions need to follow a sectoral approach to reducing compliance burden, especially for labour-intensive segments. Otherwise, the generic approach to reducing regulatory burden will continue to focus on digitization of high-level existing processes. Here are five themes to the reform:
The regulatory reform journey should begin with interventions in the three key areas - land, labour, and environment, as reducing the cost of compliance under these three laws will have a significant bearing on India’s competitiveness. It is essential to study and analyse data to better understand the actual impact of regulations or compliances and make timely corrective actions. Time is Money but do we really measure. To bring in a paradigm shift in our regulatory framework, all new rules and laws introduced in India should be mandatorily reviewed using Regulatory Impact Assessment (RIA), a well-established methodology for addressing the issue.
The Government should look to move towards Auto retention of permissions upon payment of Retention fee, rather than giving Renewals upon receiving investor applications. Renewal of license should become applicable only in case of change in Status Quo – New Product, change in process, change in key parameters etc.
While digitisation continues to keep the time needed for compliances in check, reducing the cost of compliance will depend on standard assessments and self-governance. However, for this to happen, we need standard data to be captured at all levels. While the quality and availability of data in India has improved over the years, it still has a long way to go before we reach an ideal stage. The Central and State Governments should identify common data set for specific sectors across all rules and filing, reducing the date requirement by half.
With the level of technological advancement that has already happened at Central and State Level, it is now possible for the government departments to directly exchange the list of inter-dependent and overlapping documents issued by Central/ State/ Government agencies while granting an approval. There should be no need for an Investor to furnishing same documents multiple times across departments. A very major part of the delay and cost of compliance is on account of such delays
Further, the Government should look to streamline Inspection process by making inspections more objective and simplified. For eg, in case of Inspection under Factories Act 1948, Inspection Officer assesses 94 parameters before submitting an Inspection report. Carefully examining the parameters clearly establishes the need of removing redundant parameters and modifying the parameters to make them more Objective in nature. An objective and standardized framework of inspection should be formulated, which would enable Inspection officers to play a role of advisors but not regulators.
Attracting investors and facilitating the growth of domestic players requires the Indian regulatory ecosystem to undergo rationalisation and increased digitisation. Indeed, if state governments are committed about reforms and are focused on economic recovery, they should first focus on improving regulatory delivery. As has been done for new companies, a single-window compliance portal would help existing companies in managing their compliances better. Such reforms are long-awaited and can immediately boost the business sentiment and lead the way to economic recovery.
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