States need to focus on reducing compliance burden

Management company Teamlese Regtech’s white paper on compliances has demonstrated that procedural rigours continue to burden businesses. With 69,233 compliances, including 32,542 related to labor laws, it is indeed a miracle that lakhs, if not millions, of enterprises still operate in the country. The paper points out that state-level compliances to laws, 97 per cent or 31,605, make up the bulk of the total labor-related obligations. Worse, more than half of these—17,819 to be precise—can land an entrepreneur in jail for non-compliance. Unsurprisingly, the Observer Research Foundation (ORF) published a study by a self-explanatory title ‘Jailed for Doing Business: The 26,134 Imprisonment Clauses in India’s Business Laws’ in 2022. The Teamlese paper says, “The factory owners are required to obtain a factory licence and a certificate of stability under the Factories Act, 1948. Most of the requirements pertaining to certification and licencing are contained in the state and municipal laws.” The compliances stipulate that the entrepreneurs display an abstract of maternity, minimum wages, and employee compensation regulations. They also need to maintain registers and records in accordance with myriad laws.

These include a report on cleanliness in the factory. Besides, there is the issue of redundancy and overlap. “Although many states have already issued rules and draft notifications are available, the government is yet to implement the new labour codes. Employers can benefit once the codes are put into action,” it says.

The ORF study was more scathing of the compliances. Of the 1,536 laws that govern doing business in India, more than half carry imprisonment clauses. Of the 69,233 compliances that businesses have to follow, 37.8 percent (or almost two in five) carry imprisonment clauses. More than half the clauses requiring imprisonment carry a sentence of at least one year. Further, several of these clauses criminalise process violations, while some of them punish inadvertent or minor lapses rather than willful actions to cause harm, defraud, or evade. For some laws, delayed or incorrect filing of a compliance report is an offence and the punishment stands on par with sedition under IPC 1860. One would have expected that, with laws and compliances favoring employees, at least their interests were safe, albeit at the expense of employers. However, that is not the case.

According to a November 2023 news report, private companies’ defaults on provident fund deposits with the Employees’ Provident Fund Organisation (EPFO) rose by almost 10 per cent over the previous five years, resulting in arrears of more than Rs. 15,000 crore for the retirement fund body in 2022-23. It is not just small companies which default; it was reported that some former employees of the ed-tech giant Byju’s had alleged that the company had not deposited their dues with EPFO for months together. It is a curious but painful paradox: the compliance burden continues to torment businesspersons, mostly on account of strict labour rules and regulations, and yet a large number of employees fail to get their hard-earned money back. Teamlease has recommended digitization and decriminalization of compliances. Since most labour-related compliances are at the state level, the onus is on state governments to focus on this issue. This—rather than the jamborees called ‘global investment meet’—will help them attract investment.