Over 26,000 Clauses Can Be Used To Put Entrepreneurs In Prison In India: Report

OB Bureau

June 26, 2023 2:18 pm

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New Delhi: Even though the Indian government has been pushing for ease of doing business in the country, there are still more than 26,000 imprisonment clauses as penalties for non-compliance with business laws. In other words, non-compliance with two out of five provisions for doing business in India can send an entrepreneur to jail. This is the finding of a report titled ‘Jailed For Doing Business’ by TeamLease RegTech and Observer Research Foundation (ORF).

The report compiled by TeamLease RegTech with the ORF, a New Delhi-based independent think tank, found that there are 69,233 unique compliances, which broadly regulate doing business in India out of which 26,134 clauses have imprisonment clauses as a penalty for non-compliance. However, the brunt of these excessive compliances is borne mainly by Micro, Small and Medium Enterprises (MSMEs), said the report. Since a typical MSME has more than 150 employees, it reportedly faces 500-900 compliances that cost at least Rs 12-18 lakh ($14,637-$21,955) in a year.

The report also found that five Indian states – Gujarat (1,469), Punjab (1,273), Maharashtra (1,210), Karnataka (1,175) and Tamil Nadu (1,043) – have more than 1,000 imprisonment clauses in their business laws. This regulatory overreach impacts not only entrepreneurs running for-profits but not-for-profit institutions as well, said the report. It added, “There is a widening gap between the goods and services the country needs and how the State views the entrepreneurs creating them.”

According to TeamLease RegTech, this monograph is a first-of-its-kind consolidation of business compliance data that had, to date, only existed in silos across ministries and departments. Notably, the report has been collated over the past seven years by TeamLease RegTech, a regulatory technology solutions firm, Wion reported.

The monograph for the report has classified the data into seven broad domains – labour; finance and taxation; environment, health and safety; secretarial; commercial; industry-specific; and general. “The excessive criminalization of India’s employer compliance universe breeds corruption, blunts formal employment and poisons justice,” said the Vice Chairman of TeamLease, Manish Sabharwal, in a statement.

He added, “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 offers ten recommendations on rationalising the excesses of business laws, rules and regulations, which include using criminal penalties with restraint and even calls for the creation of a regulatory impact assessment committee which could lay the foundation of policy reformation. Furthermore, the report also recommends rationalising imprisonment clauses.

“The recommendations in Jailed for Doing Business, and its thorough analysis, must compel us to change how we assess our businesses and treat those who run them,” the president of the ORF, Samir Saran was quoted as saying, adding, “I see this report as a springboard for new research and efforts that are needed to do away with rules, laws and codes that hold back India’s entrepreneurial energy and its emergence as a global economic powerhouse”.