Ask the right questions for Ease of Doing Business 2.0

News: In her budget speech, Finance Minister expressed the government’s resolve to launch Ease of Doing Business 2.0 and Ease of Living programmes.

She highlighted that in recent years, over 25,000 compliance requirements were reduced and 1,486 Union laws repealed.

Has the reduction of compliance requirements impacted Ease of Doing Business in India?

It is difficult to estimate the impact due to the following reasons:

– Govt has not given any additional information. For instance: 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? 

– Further, it was stated in Rajya Sabha that the info was based on aggregates of data uploaded on the Regulatory Compliance portal by central ministries/departments and states/Union Territories. But the portal, while live, remains inaccessible to the public, so the figure and its relevance cannot be put to open scrutiny.

– Several repealed laws were mostly archaic in nature and did not necessarily impact the business environment.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.

What are the factors that need to be considered while improving Ease of Doing Business 2.0?

– The objective of any compliance and its dropping should be clear and legitimate.  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 against the principles of governance.

– Issuing of new compliance requirements is a threat to the gains achieved via any compliance-reduction exercise. A recent report by Observer Research Foundation and Teamlease, titled Jailed for Doing Business, estimates that about 3,000 new compliances have hit businesses every year.

– The government has till now relied on digitization to improve transparency and contain duplication & delays in its compliance framework. It seems to believe that leveraging technology, and 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.

What is the way forward?

For the Govt

– Focus not only on the existing compliances but regulate the issuance of new ones is likely to have a positive impact in the long run.

– It will need to trust entrepreneurs on adhering the rules, acknowledge the existence of a usual proportion of deviants, and make it harder for itself to issue new compliances.

– It should be required to justify the need for every additional compliance requirement at the time of its issuance. Such an exercise should also cover existing compliances from time to time.

Other measures

– Any compliance requirement must be proportionate. As per ORF-Teamlease report, as of now, 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.

– Easing compliance burden on MSMEs: 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.

Passing the justification test: 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 discarded. Asking these questions would also be the key to improvements in India on our ease of living.

Source: This post is based on the article “Ask the right questions for Ease of Doing Business 2.0” published in Livemint on 23rd Mar 22.