The Hindu Editorial Analysis- 12th March 2025 | Current Affairs & Hindu Analysis: Daily, Weekly & Monthly - UPSC PDF Download

More signs of overhauling the compliance framework

Why in News?

Corruption and complex compliance regulations are major obstacles to business growth in India, discouraging foreign investment. Despite reforms, frequent regulatory changes and bureaucratic inefficiencies continue to fuel red-tapism and bribery.

Prevalence of Corruption in Business Operations

• A 2024 survey revealed that 66% of businesses in India admitted to paying bribes to navigate regulatory challenges.
• 54% of respondents indicated they were coerced into paying bribes to obtain permits, expedite government processes, or ensure compliance.
• The sectors most affected by corruption include labour, GST, income tax, pollution control, provident funds, property registration, drug regulation, and health departments.

Impact on Foreign Investment

• Corruption significantly deters Foreign Direct Investment (FDI), with a survey showing that four out of five businesses express concerns about the corrupt environment.
• There is an urgent need for a transparent and predictable regulatory framework to attract global investments.

Slow Progress in Compliance Reforms

• The government began compliance reforms two years ago, but progress has been slow.
• The Jan Vishwas (Amendment of Provisions) Act, 2023 aimed to decriminalise 180 provisions to ease business burdens.
• In the 2025 Budget, Jan Vishwas 2.0 was announced to decriminalise around 100 more provisions, but over 20,000 provisions with imprisonment clauses remain unchanged.

Complex and Unstable Compliance Regulations

• Businesses face challenges due to complex compliance requirements, which are often misused by regulatory officials to extract bribes.
• Even after meeting all compliance requirements, businesses frequently need to make unofficial payments to obtain approvals.
• Inspectors hold excessive discretionary power, allowing them to threaten imprisonment or shutdowns without accountability.

Frequent Changes in Compliance Rules

• Compliance rules are updated frequently, making it difficult for businesses to stay compliant.
• In the past year, there were 9,420 compliance updates, averaging 36 changes per day.
• This rapid change suggests regulatory inefficiency or deliberate attempts to create avenues for corruption.
• The Food Safety and Standards Authority of India (FSSAI) has implemented a system where food label regulations will change only once a year, setting a potential model for other regulatory bodies.

Delays in Labour Law Implementation

• India replaced 29 colonial-era labour laws with four new labour codes, but these codes remain unimplemented.
• Since labour laws are under the Concurrent List, state governments must act promptly to implement these long-overdue reforms.

The Need for a Digital-First Compliance System

• Establishing a factory in India involves managing hundreds of documents across more than 40 government departments, leading to increased inefficiencies and opportunities for corruption.
• A digital-first approach could streamline compliance through a unified business identifier linked to a tamper-proof digital repository.
• This system has the potential to reduce approval times from months to days, similar to the efficiency improvements seen in airport security through digital initiatives.

Fragmented Business Identity Systems

• Currently, businesses need at least 23 different identity numbers, including PAN, GSTIN, CIN, and factory licenses.
• Each identifier requires periodic renewals, contributing to inefficiencies and corruption.
• Implementing a ‘One Nation, One Business’ identity system could simplify regulatory interactions, reducing bureaucratic friction and opportunities for corruption.

Global Competition for Investments

• Other countries are actively implementing governance reforms to attract businesses.
• If large economies improve their ease of doing business while India grapples with corruption and red tape, investors may prefer other destinations.
• India needs to act swiftly to remain competitive and attract global investments.

Conclusion

• India must address bureaucratic obstacles and establish a predictable regulatory environment to maintain economic momentum.
•  The High-Level Committee for Regulatory Reforms should take decisive actions to modernize compliance processes and mitigate corruption. 
•  Without strong measures, India risks losing out on global investments and talent, which could adversely affect its economic growth.